FUND FULCRUM
October 2011

Total Assets Under Management of the mutual fund industry that fell by 4% in August 2011, dipped by 8% (by Rs. 54801 crore) to Rs. 6.41 lakh crore in September 2011. The decline was attributed to huge outflows from liquid and income funds, as banks and corporates withdrew their mutual fund investments to meet their quarter end commitments. On the other side, the average assets under management fell by 4% to Rs. 7.12 lakh crore for the quarter ended September 2011 as compared with Rs. 7.43 crore for the quarter ended June 2011. Liquid and Income Funds witnessed net outflows to a tune of Rs. 41078 crore and Rs. 15263 crore respectively in September 2011. Except Gold Exchange Traded Fund (ETF), whose AUM surged by 7.9%, rest of the category faced decline in AUM in September 2011. The net outflow from the industry stood at Rs. 54173 crore in September 2011 as against Rs. 14597 crore net outflows during the month of August 2011. So far in 2011, equity-related schemes have seen net inflows of Rs 2,510 crore, against net outflows of Rs 15,361 crore last year. It was only in April 2011 that the industry witnessed a mass exodus of over 300,000 equity folios only to see the situation improve in the subsequent months. According to the Securities and Exchange Board of India, the overall folios as on September 30, 2011 stood at 4.71 crore, a fall of around 62,000.

HDFC Mutual Fund has dethroned Reliance Mutual Fund and emerged as the largest fund house in terms of assets under management. Statistics from the industry body, the Association of Mutual Funds in India, show the average assets under management of Reliance Mutual Fund plunged in the September quarter by 10.5% to Rs 90,661 crore from Rs 1,01,259 crore in the quarter ending June 2011. On the other hand, HDFC's assets declined marginally by 0.2% during the same period to Rs 91,827 crore from Rs 92,033 crore. During the quarter, the overall industry's assets slipped by 4.2%. The past year saw HDFC Mutual Fund lose 1.4% of its assets, while Reliance Mutual Fund lost a whopping 16% of assets. However, the latter maintained a wide gap from its immediate competitor. Still, in a single quarter the fund house had a massive erosion of assets to the tune of close to Rs 10,600 crore. This not only lost it the top position but also brought it below Rs 1 lakh crore in assets. It was in May 2009 that Reliance surpassed the Rs 1 lakh crore mark and maintained this level. Its assets had reached as high as Rs 1.22 lakh crore later that year. HDFC had briefly tasted the Rs 1 lakh crore mark in November 2009 and May 2010. It could not sustain this level.

Foreign fund houses seem to be gaining ground in the Indian mutual fund industry, which is dominated by local players. So far this year, foreign asset managers have registered a relatively high growth, owing to a low asset base, improvement in performance ratings and recognition of brands among investors. In the first half of the current financial year, assets of foreign fund managers grew by 4.56% to Rs 77,412 crore from Rs 74,037 crore. The same period saw the industry adding 1.74% more assets to Rs 7,12,742 crore, while domestic players — they control a lion’s share in the market —could grow their assets by a meagre 1.4%. Interestingly, the previous financial year saw the contribution of local fund managers in the overall fall of industry’s assets at a whopping 97% or Rs 45,724 crore. The industry had lost Rs 46,987 crore of assets in the year. So far, global players contributed around 28% in adding fresh assets during this fiscal. The rest came from local fund houses. In terms of ratings too, global players’ schemes have made their presence felt among the top performers.

Mutual Fund industry saw its net profits plunge by 50% in the financial year 2010-11 as industry expenditure surged 20% and equity inflow declined 41% even though the revenues declined by a mere 1%. Surprisingly, during the same period the Mutual Fund management fees (excluding PMS fees) saw a marginal decline of 3% against the same in the previous year. Industry expenditure rose sharply to Rs 3,405 crore in the fiscal year 2010-11, a jump of 20% from Rs 2,837 crore in the previous year. Business promotion /brokerage/fund expense and employee cost have surged 40% and 12% respectively from the previous year. In addition, equity inflow has seen a sharp dip (down 41%) during the same period. Overall, the industry has seen a net outflow of Rs 49,406 crore as compared to a net inflow of Rs 83,081 crore in the previous year. Meanwhile, during the fiscal year 2010-11, AMCs launched 23 equity funds accumulating Rs 3,299 crore (down 45%) as against the previous year where AMCs launched 19 equity funds and accumulated Rs 5,989 crore. For financial year 2010-11, Reliance MF's profit was the highest at Rs 261 crore, up around 34 per cent compared to Rs 195 crore in the previous year. During the year, the profitability of HDFC Mutual Fund grew 16.3% to Rs 242 crore, as against Rs 208 crore last year. There are 45 players in the industry, with an average AUM of Rs 7,12,742 crore as on September 30, 2011.

Piquant Parade

Reliance Capital Asset Management (RCAM) is looking for a foreign partner like Japanese Nippon Life Insurance to facilitate its mission of going global and is also in talks with overseas distributors for selling its products. RCAM is also looking at frontier markets (markets lower than emerging ones) like Sri Lanka and Bangladesh for its products and is waiting for regulatory approvals from Jakarta for its Indonesian Fund.

An agreement between AIG and Bridge Partners has resulted in PineBridge becoming the new sponsor of AIG Mutual Fund. Subsequently, the name of AIG Mutual Fund will be changed from “AIG Global Investment Group Mutual Fund” to “PineBridge Mutual Fund”.

Morgan Stanley Investment Management, one of the earliest foreign fund houses to set shop in India, has reworked its capital structure. The company, which launched its first fund 17 years ago, has bought back shares held by Alanoushka Finlease and Investments, the Indian arm of Morgan Stanley Mauritius company, making it a fully foreign-owned enterprise. Following the exercise, it asked the Association of Mutual Funds of India to reclassify it as a foreign fund house. In the early days, fund houses preferred the joint venture structure to take advantage of the minimum capital requirement norms. While foreign fund houses were required to bring higher capital, joint ventures with Indian companies reduced the capital requirements to a fraction.

Motilal Oswal Financial Services was looking to sell a little less than 26% stake in its asset management and investment banking businesses.

Parag Parikh Financial Advisory Services has proposed to channel assets from its portfolio management services (PMS) business to set up a mutual fund. The Securities and Exchange Board of India’s (S EBI) proposal to increase the minimum threshold from Rs5 lakh to Rs25 lakh added to a series of other existing operational issues, resulting in a decision to switch to a mutual fund structure to manage its clients’ money. They hope to be ready to start operations in 4-5 months pending final regulatory approvals.

Prashant Jain, chief investment officer & executive director of HDFC Mutual Fund, and Chaitanya Pande, head – fixed income, ICICI Prudential Asset Management Company, are the Business Standard Fund Managers of the Year. While Jain was the best fund manager in the equity category, Pande was the chosen one for debt, for their spectacular performance during the year ended March 31, 2011.

Union KBC Asset Management Company Pvt Ltd (Union KBC), a subsidiary of Union Bank of India, is to introduce mutual fund-related transactions through ATMs. Initially, the facility christened as ATMfunds@Union Bank will be available to all the customers of Union Bank, who have a debit card. Union Bank KBC has also introduced UB KBC Prabodh, a series of investor awareness programmes for mutual fund investors. Prabodh is a multi-layered initiative, not only focused on education, but also the practical goal of getting more informed clients to invest in mutual funds.

Tata Mutual Fund may go in for strategic tie-ups that will offer opportunity to qualified foreign investors (QFIs) to tap the Indian market. In order to promote the portfolio investment route, the Government last month allowed QFIs -- individual, group or association -- to invest up to USD 13 billion in equity and debt schemes of mutual funds in the infrastructure sector. Besides, with an aim to further liberalise the capital market, the Government is contemplating to allow foreign individuals to buy equities directly in stock markets.

The Association of Mutual Funds in India plans to launch a portal, MF Utility, by the first week of April 2012 that will facilitate transactions by customers, distributors, and financial advisors in schemes offered by various asset management companies on a single, unified platform.

In order to create awareness among investors, AMFI has been conducting various advertising campaigns across the country. Till August 2011, 3,486 investor awareness programmes covering 173 cities have been organised.

To be continued…