FUND FULCRUM
January 2012

The mutual fund industry took a hit of more than Rs 16,000 crore on its asset size during 2011, even as the market leader HDFC Mutual Fund grew in size and consolidated its top position. As per the latest quarterly data released by Association of Mutual Funds in India (AMFI), the cumulative average Asset Under Management (AUM) of all fund houses stood at about Rs 6,87,640 crore in the last quarter of 2011. This marked a decline of Rs 16,040 crore from a total of Rs 7,03,680 crore in the first quarter or January-March period of 2011. The fall can be attributed to the sharp losses in the stock markets, as also to the withdrawals by investors. The loss was even larger for the cumulative asset base of the top five fund houses (HDFC, Reliance, ICICI Prudential, Birla Sunlife and UTI Mutual Funds), as their total average AUM declined by Rs 31,741 crore in the same period to end the year at Rs 3,60,733.14 crore. At the end of 2011, HDFC Mutual Fund retained its leadership position with total average AUM of Rs 88,737.07 crore. It marked an increase of Rs 2,455 crore from the levels in the first quarter of 2011. HDFC Mutual Fund was the only one among the top five fund houses to register an increase in this period, as the remaining four saw their AUMs decline. Reliance Mutual Fund's average AUM dipped by Rs 17,417 crore to Rs 84300.35 crore, while that of ICICI Prudential Mutual Fund dipped by Rs 4,080 crore to Rs 69472.08 crore. Birla Sunlife Mutual Fund's average AUM dipped by Rs 3,327 crore to Rs 60406.30 crore, while the decline was larger at Rs 9,371 crore for UTI Mutual Fund, whose average AUM stood at Rs 57817.34 crore in the October-December quarter of 2011. At the end of 2011, there were a total of 44 fund houses in the country, as against 42 in the first quarter.

Mutual fund folios, a parameter for gauging the number of investors, declined by nearly 700,000 between March and November 2011, as weak market sentiment prompted investors to redeem equity schemes. However, the number of equity fund folios through the systematic investment plan (SIP) route rose by about 600,000 during the period, an indication that investors are keeping up hope to get better returns in the longer term. According to data collated from mutual fund registrars, CAMS and Karvy, total number of fund folios have fallen to 4.16 crore in November 2011 from about 4.23 crore in March 2011. During the period, equity SIPs - that form a part of the total number of fund folios - rose by nearly 9% to 65 lakh. Fund marketers attributed the fall in total fund folios to merger of smaller equity schemes with larger funds and shifting of investments from equity mutual funds to high-yielding debt assets. In addition, the average SIP ticket size has gone down to Rs 1,650 per SIP in November 2011 from Rs 1,750 in March 2011.

Total Assets Under Management (AUM) of the mutual fund industry has declined for the second consecutive month in December 2011. It declined by 10.3% (by Rs. 70253 crore) to Rs. 6.11 lakh crore in December 2011, as corporate and banks redeemed their investments from their liquid and income fund to meet their quarter end commitments.

In 2010-11, only a handful of the 44 asset management companies were profitable. Reliance Mutual Fund led with the highest profits of Rs 261 crore, followed by HDFC Mutual Fund's Rs 242 crore. The global environment is also changing fast. Many banks or big insurers, for one, are getting rid of ancillary businesses. For instance, American International Group has put many of its businesses on the block across the world. In India such a situation has not arisen still. Many banks still own AMCs, with some public sector banks like State Bank of India having their own AMC, plus stake in others like UTI Mutual Fund. As a result, there is an ability to absorb losses and plough more funds into the business. But standalone Mutual Fund houses are facing some serious challenges.

Piquant Parade

Japan based Nippon Life Insurance Company signed a Memorandum of Understanding (MoU) to acquire 26% stake in Reliance Capital Asset Management (RCAM). The deal is the largest FDI in the mutual fund space. Nippon Life will invest Rs. 1,450 crore to acquire 26% stake in RCAM. The transaction pegs the total valuation of RCAM at approximately Rs. 5,600 crore. They are already partners in the life insurance business.

“MF Utility” is a front-end portal to facilitate efficient and cost effective transaction processing. This facility will help customers, distributors and financial advisors to transact mutual fund schemes across all asset management companies, at one place. The MF Utility will provide order routing and payment mechanisms having connectivity to RTAs, AMCs, stock exchanges, DPs, banks, centralized KYC repository, etc. AMFI has shortlisted nine companies for developing MF Utility platform. AMFI has sent Request for Proposal (RFP) to these nine shortlisted players. The bidders are likely to revert to AMFI with their detailed plans by the end of January 2012. One point of view is that the MF Utility should be run as a commercial venture rather than as a not-for-profit unit. AMFI plans to charge a transaction cost for executing orders to fund its operational expenses. The MF Utility committee wants the venture to operate on a no profit - no loss basis. Their idea is to provide this platform as a value add-on to pull in more investors into the mutual fund fold and streamline the investment process by eliminating time, cost and money involved in physical investing. AMFI may also explore to appoint DPs as point of service for MF Utility. The MF Utility will be owned by AMFI.

SEBI has allowed UTI Asset Management, India's fifth-largest mutual fund, to launch new schemes again after a gap of almost five months. The move comes as a relief to UTI, which was barred by the regulator from launching any fresh scheme in August 2011, till it gets a new chief, as the mutual fund was losing out on opportunities to garner money for its short-term debt products in a firm interest rate regime. Rules do not permit a mutual fund to launch products without the approval of its chief executive officer. UTI Mutual Fund has appointed Imtaiyazur Rahman as the acting CEO. Rahman is a part of the four-member committee that has been looking after the day-to-day operations of the firm after Sinha stepped down as its CEO. The other members of the committee which worked under guidance of the committee of directors and the company’s board were Jaideep Bhattacharya (CMO), Anoop Bhaskar (Head – Equity) and Amandeep Chopra (Head - Fixed Income). The Board has also appointed PN Venkatachalam, retired Managing Director of SBI, as an independent director on the Board of UTI AMC.

Quantum Mutual Fund has tied up with Yes Bank to use its drop box facility across Mumbai in a bid to enhance investor convenience and ease of accessibility. Investors can now drop their subscription applications at any Yes Bank drop box having the Quantum Mutual Fund logo. These drop boxes are located at various locations across the city, including 37 locations at railway stations, 38 ATM sites and 5 airports. With 80 significant locations from Churchgate to Virar, Fort to Kalyan and all the way to Panvel, such drop boxes offered by Quantum, provide investors with an opportunity to drop off their applications on their way to the office or on their normal evening walk.

Motilal Oswal Financial Mutual Fund has introduced Smart Trigger Option (STO) facility under Motilal Oswal MOSt 10 Year Gilt Fund, with effect from 26th December 2011. STO is an add-on facility offered in Motilal Oswal MOSt 10 Year Gilt fund that enables investors to make the most of the market movements without the hassle of constant tracking. The various kinds of triggers available are full redemption, redemption to the extent of capital appreciation only and redemption to the extent of principal amount only.

FPSB has started a certification and rating services for financial planning and advisory services firms. The ratings aim to create quality standards and benchmarks across the financial advisory business. FPSB will rate the services of financial planner as (Level 1 to Level 5) based on their approach to financial planning process, policy on investors' interest, risk management policy and systems, resources & infrastructure. The rating will be valid for a period of one year. Financial planners have to shell out an initial fee of Rs. 1 lakh to get them rated and Rs. 50,000 as renewal fee after one year.

The Securities and Exchange Board of India has been in talks with the Central Board of Secondary Education (CBSE) to introduce financial literacy as a part of the school syllabus. The market regulator is adopting two strategies for creating awareness among the investors community. The first of it would be to “catch 'em young” — teach certain elements of financial markets to students. Countries such as the US and Australia had included financial literacy as a part of the curriculum for students in the fifth and sixth standard. On the other strategy to create awareness SEBI, in association with stock exchanges, their members and the Association of Mutual Funds in India, is in the process of identifying teachers and training them in investor education and intricacies involved in financial markets to enable them to provide financial literacy to young professionals.

A brochure on ‘Mutual Funds - Do's, Don'ts, Rights and Responsibilities' to protect the interests of investors has been released. SEBI is planning to launch a toll-free investor care number, and to introduce a computerised system to expedite the process of grievances redress.

To be continued…