FUND FULCRUM

 May 2013

Robust inflows in income and liquid funds push industry’s AUM 18% from Rs 7.01 lakh crore in March 2013 to Rs 8.25 lakh crore in April 2013. Return of corporate and bank money, which typically happens at the end of every quarter, to the tune of Rs 1.05 lakh crore in liquid and income funds, helped industry gain 18% assets in April 2013. As the expectations of rate cut were running high, gilt funds received Rs 986 crore net inflows in April 2013 as a result of which the AUM of gilt funds reached Rs 9181 crore. Equity funds saw net outflow of Rs 80 crore in April 2013 as the BSE Sensex went up by 4%. Industry’s equity assets went up from Rs 1.49 lakh crore to Rs 1.55 lakh crore largely on account of mark to market gains. ELSS too saw net outflows of Rs 190 crore. All in all, the industry received net inflows of Rs 1.06 lakh crore largely on account of inflows in liquid and income funds as against net outflow of Rs 1.08 lakh crore in March 2013. 

Mutual fund industry lost more than 36 lakh investors, measured in terms of individual accounts or folios, for the fourth consecutive year in the financial year 2012-13. Folios are numbers designated to individual investor accounts, although one investor can have multiple folios. As per the latest data compiled by market regulator SEBI on total investor accounts with the country's 44 fund houses, the number of folios have fallen to 4.28 crore at the end of March 2013 from 4.64 crore in the financial year 2011-12, translating into a decline of 36.23 lakh new investor accounts. In the past four financial years till 2012-13, the mutual fund industry had lost more than 55 lakh new investor accounts. Mutual fund sector, which held 4.75 crore folios at the end of financial year 2008-09, saw an increase of 3.66 lakh new investors account to 4.8 crore in 2009-10. However, later the number of folios continued to witness a southward trend and tumbled to 4.28 crore. The sharp fall in the number of folios can be attributed to profit booking and various merger schemes in the mutual fund industry, among others.

Tenure-wise analysis of assets under management (AUM) across investor types and categories for the half year ended March 2013 showed that 63% of the retail AUM stayed in equity mutual funds for more than two years. A similar trend was also observed in the data released by AMFI as of September 2012. Declining interest rates saw retail investors adding gilt funds to their portfolio with retail folios in this category almost doubling in 6 months from 27,145 folios to 51,763 folios as of March 2013. Corporates continued to dominate mutual fund AUM with a 46% share in March 2013, slightly lower than 47% in September 2012. HNIs with a 28% share were the second biggest AUM contributors followed by retail investors with 23% share.

With 23.5% and 20.2% of their AUM coming from B-15 cities, UTI and SBI are the AMCs with the highest proportion of assets from B-15 cities. Out of Rs 69,450 crore AUM managed by UTI, 23.5% comes from B-15 cities. This success can be attributed to their long established presence, strong distribution channel, and deeper penetration in the smaller cities. UTI has 150 branches in B-15 cities. UTI is targeting to have 30% of AUM from B-15 cities in the coming months. At present, UTI is strengthening its distribution force by empaneling 900 new cadres of distributors in smaller cities. UTI is followed by SBI with 20.2% of its AUM coming from B-15 cities/towns. SBI currently manages AUM of Rs 54,904 crore. At present, SBI Mutual Fund has nearly 13000 distributors in B-15 cities and is planning to empanel 3000 more new cadre of distributors. India’s largest fund house by assets, HDFC boasts of 19.7% AUM concentration in B-15 towns, followed closely by Reliance at 19.6%. Among the medium sized fund houses, Religare has 19.2% AUM concentration in the hinterland. Axis and Goldman Sachs too boasted of 16% AUM concentration in B-15 towns. ICICI Prudential has 16% AUM concentration in B-15 cities. SEBI has allowed AMCs to charge higher expense ratio on assets sourced from beyond the top 15 cities. Fund houses have also hiked the commission structure for application received from these towns. Currently the top 15 cities account for nearly 87% of industry’s AUM. Nearly 5% of industry’s assets are concentrated in the next top 20 cities (those beyond top 15).

Piquant Parade

UTI Mutual Fund topped the tally of CRISIL Fund Rank 1 schemes with 7 of their funds in the top cluster followed by SBI Mutual Fund with 6 funds as per the latest CRISIL Mutual Fund Rankings for the quarter ended March 2013. During the quarter under review, top ranked funds from largecap, diversified and small & mid-cap categories beat their benchmarks on the back of allocations in information technology (IT), telecom and fast moving consumer goods (FMCG). On the other hand, lower ranked funds had a higher exposure to banks, construction, capital goods and metals, which gave negative returns. Within debt categories, gilt funds were the top performers during the quarter under review, followed by income funds. The performance was primarily on account of fall in interest rates.

On March 28, 2013, Invesco acquired 49% shareholding in Religare Asset Management Company Private Limited and Religare Trustee Company Private Limited and now acts as the co-sponsor of Religare Mutual Fund. Religare Mutual Fund will now be known as Religare Invesco Mutual Fund. The mutual fund schemes will also be renamed accordingly.

Fund houses have got quicker in resolving investor complaints with most grievances being resolved within 30 days, shows an analysis of complaints data posted on AMC websites. Reliance Mutual Fund received 13679 complaints in FY 2012-13 and resolved 13424 of them within 30 days. Only 63 complaints took up to three months for getting redressed. Similarly, DSP Black Rock received 2025 complaints during FY 2012-13 out of which 2023 were resolved within 30 days. Tata Mutual Fund received 1462 during the same period and 1443 were resolved within 30 days. IDFC Mutual Fund too resolved 971 complaints within 30 days, out of the total 988 complaints received by it during last year. Greater the number of folios higher the number of complaints. For instance, Reliance has more than 63 lakh folios and it received 13679 while Axis Mutual Fund, which has close to five lakh folios received comparatively less complaints (361). Similarly, a new fund house like IIFL with 26928 folios received only 41 complaints. An analysis of investor complaints posted by AMCs on their websites shows that majority of these complaints are in connection with errors in statement of accounts and relating to non-update of changes in address, PAN, bank details, nomination, etc. The non-receipt of redemption proceeds and account statement were the other major reasons for complaints. The complaints, which fund houses receive are broadly divided in three categories. These are non-receipt of money (dividend units, redemption proceeds), account statement (non-receipt of account statement, errors in account statement), and service related (wrong switch between schemes, deviation from scheme attributes).

In an effort to explain the significance of mutual funds and to de-jargonize its complicated terminology, AMCs have come up with innovative methods of delivering the mutual fund story through comics, cartoons, and short films. So, on the one hand, Axis Mutual Fund is trying to explain the mutual funds concepts through popular Punjabi comic characters Santa and Banta, on the other IDFC has produced a short Hindi film called ‘Bachat Nivesh Badhat’. Sometime back, Edelweiss Mutual Fund came up with a character called Mr Absolute (depicting a common man) to explain various attributes of Edelweiss Absolute Return Fund. Birla Sun Life Mutual Fund has used the old age fable of Crow and Pitcher to illustrate the advantage of SIP in achieving financial goals. SBI Mutual Fund, Tata Mutual Fund, and Kotak Mahindra Mutual Fund came up with Fund Guru, Professor Simply Simple, and Faayde lal Ke Funde. All the concepts aim to explain the mutual funds jargons in an interesting and easy way. 

Regulatory Rigmarole

National Automated Clearing House system (NACH), initiated by National Payments Corporation India (NPCI) is a system, which helps faster transaction settlement, wider coverage, and superior mandate management system. HSBC is the first bank in India to complete live customer transactions on the NACH debit platform in March 2013 followed by Reliance Mutual Fund. The NACH Debit is an effective way to collect funds from consumers spread across remote locations in India as compared to Electronic Clearing System Debits. NACH is a new payments system, which incorporates best practice functionality from existing systems around the world. Currently registering a SIP ECS mandate takes 21 days and there is no process to track if the ECS has been confirmed at the bank’s end. NACH is an online end-to-end electronic system, which helps fund houses register SIP mandates swiftly. The concept is new to India, having been operationalized in December 2012. NACH can be utilized to pay utility bills, insurance premiums, and mutual fund SIP ECS. NACH systems helps fund houses cut down SIP registration time from the existing 21 days to three days.

The mutual fund sector might introduce uniform valuations of debt securities across AMCs, to increase the transparency in the valuation of these instruments. The move would mean a debt security could not have different valuations even in different fund houses. Currently, traded debt securities can be valued on the basis of weighted average price. Untraded ones can be valued on the basis of parameters set by an AMC’s valuation committee. The Association of Mutual Funds in India (AMFI) has asked members to work with third-party entities to introduce a uniform valuation system for all securities across funds. They expect it to be formally implemented from July 2013.

 As SEBI celebrates its 25 years of existence, Chairman U K Sinha says this has been an eventful journey for the capital markets regulator and it has created market infrastructures that are better than those in many other countries, including some most developed economies. Sinha is the eighth Chairman of SEBI since its inception as an independent regulator in 1988, when the central government headed by the then Prime Minister Rajiv Gandhi decided to give a boost to the stock market activities as part of its economic liberalisation drive. Prior to SEBI coming into existence, the capital markets were regulated by the Capital Issues (Control) Act of 1947. There have been massive changes in the way the market functions and the trading takes place. From the use of latest technology to widening of the markets and market activities, a host of eventful changes have taken place. A host of new investment avenues and market entities, starting from mutual funds to venture capital funds have come to the fore, widening the markets in a big way. There have been huge changes in the way primary markets function and are regulated. Amid all this growth and widening of the markets, safeguarding the investors' interest has remained paramount and significant changes have been made on that front as well. Despite some of the shortcomings of the institution, successive chairmen have built on its strengths both in terms of regulation and market development featuring what many acknowledge global electronic trading systems, depository, clearing corporation and settlement systems, derivatives trading, better quality orders, and enforcement of regulations.