FUND FULCRUM

December 2012

According to rating agency CRISIL, the mutual fund industry's assets under management during November 2012 grew by 3.25% to touch Rs 7.93 lakh crore, the highest month-end assets for the industry since April 2010, mainly due to inflow of funds into money market. Money market saw net inflows worth Rs 11,400 crore, garnering over 91% of the total inflows (of Rs 12,600 crore) seen by the industry in the month. The inflows were, however, lower compared to Rs 18,200 crore in the previous month. Inflows in the category are part of the cyclical money flow in the category as corporates invest their short-term investments in this category during the quarter before withdrawing a major chunk at the end of the quarter to meet their advance tax requirements.

Continuing redemptions and a drop in sales led to a net outflow of Rs 1,525 crore during November 2012. From June 2012 to November 2012, there has been an outflow of over Rs 10,000 crore from equity mutual funds. Though the quantum of redemptions was much lower than that of the previous three months, the new inflows through sales could not balance the outflows. The total equity assets under management, in November 2012, increased by 3.5% to Rs1.90 lakh crore, whereas, the Sensex moved up by 4.5% over the same period. For the calendar year, equity schemes witnessed just two months of positive net inflows. There have been just seven new fund offers (NFOs) launched during the last 11 months. The latest NFO—Goldman Sachs India Equity Fund—was able to amass just Rs 67 crore in the last month. Sales for the past month declined by 12% year-on-year to Rs 2,777 crore from Rs 3,173 crore in November 2011. This is the fourth month in a row where sales have declined continuously month-on-month. Except, for a peak in sales in February and March 2012 (above Rs 3,500 crore), sales for other months varied between Rs 2,900 crore to Rs 3,350 crore.

Investors pulled out Rs 10,784 crore from equity funds from April to November 2012 to cash in on the rally in Indian equities, resulting in a drop of more than 30 lakh folios, which is the highest fall so far. Equity folios account for 79% of the mutual fund industry’s total investor folios of 4.40 crore. Investors pumped in Rs 25,241 crore in equity funds, which is the gross mobilization, and redeemed Rs 36,025 crore which resulted in a net outflow of Rs 10,784 crore. Since April 2012, the industry has seen net inflow in only one month, May 2012 when Rs 506 crore came in. Balanced funds also saw net outflows of Rs 336 crore with more than one lakh folio closures. Fund of funds which invest overseas also saw net outflows to the tune of Rs 315 crore. These funds have been seeing continuous outflows since June 2012. Industry’s assets under management went up to Rs 7.87 lakh crore from Rs 6.60 lakh crore, up 19 % during the same period. Overall, the industry recorded a net inflow of Rs 1.61 lakh crore from April to November 2012, largely on account of inflows in debt funds. As equity markets remained volatile, fund industry has largely been promoting fixed income funds, particularly FMPs and bond funds. Debt funds saw net inflows of Rs 1.71 lakh crore with close to seven lakh accounts being opened in this category. The total count of industry’s folio dropped 5% to 4.40 crore in November 2012 from 4.64 crore in March 2012.

During October 2012, mutual funds saw a net inflow of Rs 46,720 crore (of which Rs 34,901 crore were mobilised by private sector and Rs 11,819 crore by public sector) as compared to a net outflow of Rs 51,907 crore (of which Rs 37,588 crore were from private sector and Rs 14,319 crore from public sector) during September 2012, according to SEBI. This significant level of fund mobilisation has also helped the total asset under management of mutual funds to grow to Rs 7.68 lakh crore as on October 31, 2012. So far in the current fiscal year (2012-13), overall net investment in mutual fund schemes rose to Rs 1.48 lakh crore from Rs 96,566 crore mobilised in the corresponding period last year.

Net SIP registrations have been negative each month from April 2012 to September 2012. The SIPs that ceased or expired accounted for a greater number than new SIP registrations leading to a decline of nearly 3.09 lakh SIP accounts despite the fact that the number of new SIP registrations was showing a rising trend from June 2012 to September 2012. And now with the consolidation of plans according to the new regulations, the SIP accounts are expected to decline further.

Even as the BSE Sensex lost more than 1700 points in FY11-12, at least seven mid-sized AMCs have managed to cut their losses, shows a Cafemutual study of 15 mid-sized AMCs that are currently ranked 10 to 25. Axis, Baroda Pioneer Mutual Fund, LIC Nomura, IDBI, JM Financial, J P Morgan, and Peerless managed to minimize their losses to the tune of Rs 82 crore. Axis (Rs 513 crore), Deutsche (Rs. 3,958 crore, IDBI Rs (Rs 1954) and JP Morgan (Rs 2959) recorded an increase in their assets in FY12. The combined net loss of 8 AMCs came down to Rs 161 crore in FY12 as against Rs 292 crore in FY 2010-11. Six AMCs posted a combined profit of Rs 54 crore as against Rs 48 crore the previous year, showing a marginal improvement in their businesses. Among the profitable players, Sundaram and Deutsche recorded a dip in their profits in FY12. Sundaram Mutual Fund’s profit after tax dipped from Rs 13 crore in FY11 to Rs 11 crore in FY12. Deutsche AMC saw its net profit decrease from Rs 11 crore in FY11 to Rs 6 crore in FY12. Tata AMC saw its net profit grow from Rs 17 crore in FY11 to Rs 31 crore in FY12. Among the mid-sized players, HSBC and Principal reported an increase in their losses. HSBC Mutual Fund’s net loss increased from Rs 8 crore in FY11 to Rs 27 crore in FY12 while Principal Mutual Fund’s net loss went up to Rs 8 crore from Rs 3 crore during the same period. Religare Mutual Fund turned profitable by posting a net profit of Rs 0.31 crore against a net loss of Rs 50 crore in FY11. BNP Paribas AMC which reported a net loss of Rs 24 crore in FY11 reported a profit of Rs 1 crore in FY12. Cost rationalization and right product mix will be important for mid-sized and small AMCs to sustain their businesses. Raising assets has also helped some AMCs cut their losses.

Piquant Parade

L&T Finance, a part of the diversified group Larsen & Toubro, has completed the acquisition of Fidelity's mutual fund business in India for an undisclosed amount. On completion of this transaction, the all new L&T Mutual Fund has over Rs 12,800 crore in managed assets and an investor base of close to 9.5 lakh investors from more than 200 cities and towns. This transaction is one of the largest mergers and acquisition deals in the Indian mutual fund industry and provides L&T with the necessary size, scale, and momentum to move to the next level. Over the last few months, they focused on a seamless transition and added high quality talent to their investment team and other areas. The new entity will answer different customer needs with a range of investment options spanning 25 funds across asset classes, risk profiles, and time horizons.

DSP BlackRock has received an in-principle approval from PFRDA to act as a fund manager for National Pension Scheme (NPS). Currently seven firms manage private and government retirement corpus - LIC, SBI, UTI, IDFC, ICICI, Kotak Mahindra, and Reliance Capital. NPS was initially launched for central government employees and later extended to all citizens from May 2009. According to PFRDA, NPS has 38.28 lakh subscribers with assets under management of Rs 21638 crore as on September 2012. PFRDA had recently revised the fund management fee to 0.25% p.a. of the AUM from November 1, 2012. Fund managers are to revise the investment management fee once a year.

SEBI has asked AMFI to expedite the process of creating a new simplified route for broad basing the distribution force. SEBI had identified postal agents, retired government and semi-government officials, retired teachers and bank officers, bank correspondents as the new cadre to sell mutual funds. These new cadres of distributors would require a simplified NISM certification and AMFI registration. AMFI is said to be in the process of finalizing the structure of this new certification with NISM. Details like minimum passing percentage, language, validity are also being worked out. The process of registering with AMFI for ARN is also being reviewed. These distributors will only be allowed to canvas simple schemes like diversified equity schemes, fixed maturity plans (FMPs), and index schemes having track record which equals to or is better than their benchmarks for each of the last three years. For simplifying this exam, NISM could do away with the negative marking for wrong answers or bring down the minimum percentage of mark from 60% to 50%. The curriculum could also be converted into regional languages. The KYD requirement could also be done away with. SEBI’s decision to expand the distribution force comes in the wake of declining active distributors in India. There were more than 80,000 ARNs registered with AMFI and the number came down to 40,000 after KYD was introduced. KYD is mandatory for selling mutual funds. Unofficial reports peg the active distributors count at 5,000 to 10,000

Anoop Bhaskar of UTI bagged the best equity fund manager award while Maneesh Dangi of Birla Sun Life walked away with the best debt fund manager award. HDFC Mutual Fund won the best fund house award while UTI emerged as the runner-up at the Outlook Money Awards 2012. HDFC also bagged the best equity fund house award. The best debt fund house award went to Kotak Mahindra.

Mutual Fund houses have started issuance of the mutual fund common account statement in electronic form in association with AMFI. The facility was introduced from November 2012. SEBI had earlier mandated that all fund houses provide a common account statement (CAS) to investors with an objective to offer an investor enhanced value, convenience and security with benefits such as anytime/anywhere access. Since November 2011, physical copies of CAS are being dispatched to investors. It is issued each month to mutual fund unit holders in whose folios financial transactions have taken place during that month. Now, the electronic version of this statement will be sent to the investor's e-mail ID, that is, the e-mail ID registered as per the investor's KYC (know-your-customer) records or the one registered in the last transacted folio during the month. With eCAS, investors will have further convenience and will together make a positive impact on environmental responsibility through this go-green initiative.

To be continued…