FUND FULCRUM

October 2012

The average assets managed by the Indian mutual fund industry inched very close to the Rs 7.5 lakh crore mark after a long haul. At Rs 7.47 lakh crore, the mutual fund industry's average assets under management (AAUM) registered about 8% rise since the April – June 2012 quarter and was highest only after May 2010 when the industry had reported an asset base of over Rs 8 lakh crore. In terms of asset size, HDFC Asset Management leads the pack with the highest AAUM base of Rs 97.77 lakh crore, registering a growth of over 5% since the April-June 2012 quarter. Reliance Asset Management, which was once reckoned as the largest fund house of the country in terms of assets, clocked in an average AUM of Rs 86.32 lakh crore followed by ICICI Mutual Fund with an asset base of Rs 76.38 lakh crore.

UTI, Birla Sunlife, Kotak, Reliance, and HDFC added more assets during the July-Sept quarter, according to the latest AMFI data. UTI Mutual Fund recorded the highest average assets under management growth (AAUM) of Rs 9860 crore during the July-Sept quarter. Its AUM now stands at Rs 70783 crore, up 16 % from Rs 60923 crore during April-June 2012. Birla Sunlife saw the second largest AAUM growth (Rs 5699 crore) from Rs 67206 crore to Rs 72904 crore, up 8% during the same period. In percentage terms, Kotak AMC recorded the highest increase of 20%. Reliance and HDFC also added Rs 5632 crore and Rs 5149 respectively. All in all, 34 AMCs saw a positive AAUM growth, adding Rs 57742 crore in all to their kitty. Axis Mutual Fund crossed the Rs 10,000 crore AUM mark once again. Its AUM went up from Rs 8759 crore during April-June to Rs 10490 crore, up 20% during July-September 2012. The industry’s assets went up from Rs 6.92 lakh crore during April-June to Rs 7.47 lakh crore during July-September, thanks largely to inflows in fixed income funds. The BSE Sensex has gained 1527 points or 9% from July till September end. The industry has seen robust inflows in debt schemes in July and August while equity funds have not been able to garner good inflows which resulted in a net outflow of Rs 2900 crore. In August, the industry saw a net inflow of Rs 7,548 crore and Rs 14,775 crore in income and liquid/money market funds respectively. Similarly, in July the net inflows were positive at Rs 21,670 for income schemes and Rs 17,708 crore for income/money market schemes. 

Owing to bad market conditions, folio consolidation and redemptions, the mutual fund industry has been seeing a relentless depletion in equity folios. Since March 2010, equity schemes have lost a whopping 49.82 lakh folios till August 2012 while debt funds have added 19.22 lakh folios. As per the latest SEBI data, there has been a drop of more than 15 lakh equity folios (including ELSS) — from 3.76 crore folios in March 2012 to 3.61 crore folios in August 2012. On the other hand, debt folios have increased from 52.50 lakh to 56.60 lakh during the same period, an addition to 4.10 lakh folios.

Piquant Parade

Despite the challenges surrounding the mutual fund industry, foreign asset managers are keen to get a foothold in India. In the last three years, seven overseas AMCs have bought a stake in Indian AMCs with the latest one being Invesco’s entry in Religare. US-based Invesco Ltd, a leading global player in  the mutual fund industry has picked up 49% stake in Religare asset management company for about Rs 460 crore, valuing the company that has assets under management (AUM) of Rs 14,600 crore at about Rs 950 crore. The deal value is based on 6.4% of the closing AUM at the time of receiving regulatory approval. Religare plans to launch overseas feeder funds and explore opportunities to attract QFI investments with the help of its foreign partner. The stake sale will result in change in the name of the company to Religare Invesco Asset Magement Company Ltd.  The joint venture will be headed by Saurabh Nanavati, CEO, Religare AMC along with the existing team. Religare AMC entered the industry by buying Lotus Asset Management in 2008. It achieved break even in the third year of its operations by posting Rs 31.60 lakh net profit in FY 2012. 

Japan’s Daiwa Securities Group-owned asset management company Daiwa Asset Management (India) Pvt. Ltd. plans to sell its Rs 789 crore mutual fund assets. The Japanese company’s move comes on the back of the Fidelity Group’s exit from the Indian mutual fund industry, largely on account of its inability to expand the business in a highly competitive market plagued by regulatory uncertainties. The fund house is in talks with at least four asset management companies, including State Bank of India-sponsored SBI Funds Management Pvt. Ltd and Chennai-based Sundaram Asset Management Co. Ltd, to sell its Indian fund assets. Daiwa Industry Leaders is the company’s only equity-oriented scheme with assets worth Rs 30 crore. Daiwa Mutual Fund has been conservative and has not launched too many schemes. It started its business in the country in January 2011 after buying Shinsei Asset Management (India) Pvt. Ltd in March 2010.

UTI Mutual Fund and Syndicate Bank have entered into a tie-up for distribution of UTI Mutual Fund schemes. Under the agreement, Syndicate Bank will offer the entire bouquet of UTI Mutual Fund's schemes through its 2713 branches in India. With this alliance, customers of Syndicate Bank will get easy access to invest in the various schemes of UTI Mutual Fund at the branches where they do their banking transactions. The tie-up will also enable UTI Mutual Fund to offer its comprehensive range of mutual fund products to a wider segment of the society.

Barora Pioneer AMC has announced a strategic expansion plan to strengthen its reach to investors in the remotest corner of the country by tying up with Karvy Computershare Investor Service Centres to provide Investor Services facility at 203 locations. With effect from October 1, 2012, Baroda Pioneer Mutual Fund has started accepting transactions in an additional 126 cities, in addition to the 77 locations already active.

AIG Global Investment Group Mutual Fund has announced its name change to Pine Bridge Mutual Fund effective October 6, 2012. Accordingly, all its scheme will be renamed.

HDFC Mutual Fund has bagged the best overall fund award by Lipper for 2012. The award is given by Lipper, a leading fund research organisation, to Indian funds that have consistently delivered a strong risk-adjusted performance. Last year, Fidelity Mutual fund had won the best overall fund award. This year, Fidelity Mutual Fund has bagged the best equity fund house award. HDFC Mutual Fund also bagged the best mixed asset group award for 2012. Four of its schemes have picked individual honours as well. Escorts Mutual Fund bagged the Lipper group award for the best bond fund. However, its schemes did not figure in the individual awards list. In total, ICICI Prudential Asset Management Company won seven awards, followed by HDFC Asset Management Company with six awards, including four in the hybrid fund category. HDFC Prudence was adjudged the best scheme in the 3-year and 10-year periods. Three other hybrid schemes, HDFC Children's Gift Fund (Investment Plan), HDFC Balanced and HDFC Children's Gift Fund (Savings Plan) were top performers in the 3-year, 5-year and 10-year periods in their respective categories.

At the current AUM, the industry is likely to spend Rs 149 crore annually in educating investors about mutual funds. Fund houses are required to set aside two basis points from their net assets, which at current AUM translates into Rs 149 crore annually, towards educating investors. If utilised well, it could, besides increasing investor awareness, also help in the expansion of the market for mutual funds which is somewhat stagnating for a variety of reasons. Out of this Rs 149 crore, the top 15 AMCs which hold 88% of industry’s assets will account for a major chunk of the industry spend. The next 29 AMCs will spend Rs 18 crore. So far, AMCs have been conducting five investor awareness campaigns every month at AMFI’s behest. According to AMFI, from May 2010 to August 2012, 36 AMCs have conducted 22,765 programs in 405 cities covering 766,670 participants. AMFI, with contributions from AMCs, had also run a media campaign last year to promote mutual funds. One possible way to utilise the two basis points is to pool resources and run a similar campaign on a bigger scale. 

Sundeep Sikka of Reliance Mutual Fund will also continue to serve as Vice-chairman of AMFI. The Board of Directors of AMFI Board has re-elected Milind Barve of HDFC Mutual Fund as the Chairman. Sundeep Sikka of Reliance Mutual Fund has also been re-elected as Vice-Chairman. Both will hold office till the next Annual General Meeting. Milind Barve was appointed as the chairman of AMFI in March 2011 after U K Sinha assumed charge at SEBI. Sundeep Sikka was also appointed in the same year as AMFI’s vice-chairman. AMFI is governed by a 15-member board of directors.

…to be continued