FUND FULCRUM
January 2011

The average assets under management (AUM) for the October-December 2010 quarter has declined 5.31% to Rs 6,75,376 crore as against Rs 7,13,281 crore for the September 2010 quarter as per the data released by the Association of Mutual Funds in India (AMFI). Interestingly, in the previous quarter, AAUM had constantly risen between July and September 2010 after a fall of over 15% in June 2010 due to auctions for 3G and broadband wireless access spectrums. This is the first time that the mutual fund industry is disclosing the AUM data on a quarterly basis. Till September 2010 the mutual funds used to disclose AUMs on a monthly basis.

All the top five fund players lost assets in the December 2010 quarter. Birla Sun Life Mutual Fund was hit the hardest, with the fund house losing over 14.43%, while Reliance Mutual Fund, HDFC Mutual Fund, and ICICI Prudential Mutual Fund lost over 5%. UTI Mutual Fund performed slightly better, with assets declining 3.3%. The average assets in the October-December 2010 quarter of Reliance, HDFC, ICICI Prudential, Birla, and Franklin Templeton stood at Rs 1,02,066 crore, Rs 87,883 crore, Rs 65,840 crore, Rs 57,689 crore, Rs 39,442 crore respectively. As per the data compiled by the Business Standard Research Bureau, out of the 42 players in the mutual fund market, only 10 could manage to add fresh assets in their kitty. These players include Benchmark Mutual Fund, Axis Mutual Fund, Mirae Assets Mutual Fund, and Sundaram Mutual Fund, among others.

Mutual fund industry, particularly the retail segment, has shown deceleration in growth. It is an area of concern for the industry. FII inflows and HNI investments have shown rapid growth between July 2009 and December 2010, but the retail segment has lagged behind. The mutual fund industry has been losing 2 lakh retail folios every month for the last 17 months. Between April and December 2010 alone, over Rs 17,000 crores were redeemed by investors and between September and December 2010, assets under management fell by over 5%. Industry body AMFI says that over 30 lakh retail investment folios have been lost since August 2009, when the ban on the entry loads was implemented – that is around 2 lakh folios every month. In July 2009, total retail folios through ELSS, Equity and Balanced schemes stood at 4.47 crores. This has fallen to 4.17 crore folios by December 2010.

The entry load ban, which commenced from August 1, 2009, has impacted fund advisory business. Several mutual fund distributors are finding it hard to resist the lure of selling other products, mainly unit-linked insurance plans, which offer as much as 8-10% as commission. But distributors are allowed to charge fees upfront from investors, which is hard unless the advice they give is top-class. This prevented distributors from selling mutual funds. The number of mutual fund investment advisors registering with AMFI has plunged 65% from the peak in 2008, as the abolition of entry load has taken the sheen off the profession. In the April-June quarter of 2010, only about 6,500 people sought the AMFI Registration Number (ARN), mandatory for selling mutual funds, against 17,132 in the July-September quarter of 2008. An average of 4,200 candidates got ARNs in the September and December quarters of 2010. The number of people getting AMFI registrations rose by a mere 5% over the past two years. Going by AMFI data, there are 81,390 ARN holders in India as against 77,562 in 2009 and 70,679 in 2008.

Piquant Parade

Daiwa Asset Management Co Ltd (DAM), the asset management arm of the Japan-based Daiwa Securities Group, has launched its business in India. In December 2010, Daiwa Securities Group completed the acquisition of Shinsei Asset Management (India) Pvt Ltd., which has been renamed Daiwa Asset Management (India) Pvt Ltd. DAM manages over 300 funds investing in various asset classes with assets under management of over $115 billion, as at the end of December 2010.

While Principal Financial Group (Mauritius) Ltd. is restructuring its joint ventures with Punjab National Bank and Vijaya Bank in India, Principal, Punjab National Bank, and Vijaya Bank continue to remain shareholders in Principal PNB Asset Management Company Pvt. Ltd. and Principal Trustee Company. Further both the partners, Punjab National Bank and Vijaya Bank, stay committed to distribute the products of Principal PNB Asset Management Company.

Fund houses are warming up to the idea of launching ‘goal series’ funds, which aim to create ‘savings’ pools to meet future expenses relating to higher education, housing, marriage, and retirement. Close on the heels of Fidelity Mutual Fund which recently launched a ‘children fund’, IDFC Mutual Fund, Peerless Mutual Fund, Axis Mutual Fund, Reliance Mutual Fund, and UTI Mutual Fund are planning asset allocation funds which focus on various life goals. Goal series funds typically invest in multi-asset class such as equities, gold, and debt. The idea is to emulate the insurance-style of marketing which put the onus of investments on the investor. This class of funds will be managed, taking into consideration the long-term needs of investors. A ‘marriage fund’, which could be redeemed in five to six years, will have a higher exposure to debt — about 35% on an average. Similarly, retirement funds, the corpus of which investors would need to dip into only after 10-15 years, will have a higher exposure to equity — about 85-90 %. Goal series funds will prompt investors to look at mutual funds as a long-term investment product which was not the case till now. Ordinary investors will understand these funds better. Regular fund products are very technical as they speak about strategies and performance. The ‘goal’ series will be based on financial planning.

Eight domestic equity mutual fund schemes, including SBI Magnum Contra, HDFC Equity, and Reliance Growth, are among the 25 best-performing open-ended equity funds in the world of the last decade, according to investment research firm Morningstar. These funds benefited from the 10-fold growth in total value of India's stock markets, led by a robust performance of one of the fastest growing economies in the world. The eight funds returned 31% to 38% on a compounded basis in the past decade. The Sensex returned 17.8% on a compounded basis during the 10 years. Russia's RTS fetched 28.6% and Indonesia's JSX Composite gave 24.4% returns during the period.

Large part of the money came as an opportunistic play to participate in the market rally, in earlier mutual funds in India. In the course of the last two years, the investors’ mind is changing. In the early part of 2008, there were about 30 lakh Systematic Investment Plans (SIP) accounts. Now, the industry runs close to 50 lakh SIP accounts which are growing month on month. Structural change in the industry is very important. With the increasing number of SIP accounts in the industry, there will be close to Rs 1 crore SIP accounts by the end of 2011.

To be continued…