Monday, June 24, 2013


June 2013

Reversing two successive years of decline in assets under management (AUMs), during the financial year ended March 2013, the AUMs of the AMCs shot up by 76,500 crore, a year-on-year increase of 19.5%. The AUMs dropped 1.6% and 2.9%, respectively, in the preceding two years. Most, if not all, of the latest increase can be attributed to corporate investors parking money in debt funds to profit from the inverse relationship between interest rates and bond prices. Another factor fuelling the inflow is direct access to mutual funds. Around 80% of fund inflows since January 2013 have come via direct access. The country's 44 fund houses posted 5% growth or Rs 42,900 in average AUM to touch an all-time high of Rs 8.68 lakh crore in May 2013 on the back of strong inflows into money market and income funds according to a Crisil Research Report. Most of the inflows were into short term and ultra short term debt funds as banks and corporates re-invested their funds in these short maturity categories. Similarly, assets of liquid funds or money market funds jumped to a 25-month high of Rs 2.06 lakh crore because of improved liquidity in the banking system. However, the mutual fund industry saw an outflow of nearly Rs 500 crore in the gilt funds segment in May 2013 after seeing an inflow in the preceding month. This was the highest pull out since July 2009, when Rs 1,061 crore of out flow was witnessed in the gilt funds category. Accordingly, gilt funds' assets declined by Rs 255 crore to Rs 8,900 crore at the end of May 2013. In addition, equity funds saw an outflow of Rs 3400 crore in May 2013, a sharp hike from Rs 300 crore withdrawn in April 2013, the highest for the category in eight months. The segment has witnessed outflows in 11 months out of the past 12 months as investors continued to book profits. The outflow from the equity market coincided with around 1% gain in the National Stock Exchange's benchmark Nifty amid mixed domestic and global cues. Besides, equity funds' assets declined by Rs 3200 crore, or 1.8%, in May 2013 to Rs 1.75 lakh crore.

The top 16 AMCs, with 3.89 crore folios accounted for 91% of industry’s 4.28 crore folios as on March 2013. UTI Mutual Fund had the largest number of folios in 2012 (more than one crore) but saw it shrink to 98.39 lakh in 2013. The next in the pecking order is Reliance Mutual Fund which also saw its folios drop by 11% from 70.96 lakh in 2012 to 63 lakh in 2013. HDFC had the third largest folio count at 49.87 lakh and saw a 3% drop from 51.61 lakh in 2012. Except Axis all the 15 AMCs saw their folios fall. Axis Mutual Fund added more than 59756 folios in 2013 due to four new fund launches. IDFC Mutual Fund lost the least number of folios (9017) among the 15 AMCs. It had 5.98 lakh folios as on March 2013, down 1% from 6.07 lakh in 2012.
Data from the Association of Mutual Funds of India, an industry body, shows that in the past six months, retail folios - a proxy for number of investor accounts - fell by 4.9%. By comparison, folios of corporates and high net worth individuals (investment above 5 lakh) increased by 31.9% and 4.7%, respectively. As of March 31, 2013, out of the industry's total AUMs of 7,02,000 crore, the share of retail investors was 23.8%, down from 28.9% in March 31, 2012, while inflows have been good, the challenge remains to grow retail participation in equity funds in order to achieve a stable and sustainable growth for the industry.
Piquant Parade

SBI Mutual Fund has agreed to acquire Daiwa Mutual Fund. This acquisition will help SBI Mutual Fund to acquire a unique client base which will increase its penetration in retail and HNI space. SBI Mutual Fund was managing Rs 54905.44 crore and Daiwa Mutual Fund was managing 266.13 crore as on March 31, 2013. The acquisition will not only benefit the unit holder of SBI Mutual Fund but also unit holders of Daiwa Mutual Fund as it will expose schemes to the best practices of SBI AMC. The value of the transaction is not disclosed yet by either party. After the transaction is complete, all the schemes of Daiwa Mutual Funds will become schemes of SBI mutual funds. Investors will be given an option to exit without exit load charges.

The trustees of UTI, the country’s fifth largest mutual fund in assets, are proposing a split of the top post, resulting in the asset management company having a separate chairman and a managing director.  This comes as shareholders were set to approve the appointment of Leo Puri, senior advisor to McKinsey & Co, as the CMD of UTI Mutual Fund. The trustees now intend to propose Puri’s name for chairman, while nominating a mutual fund sector insider for the MD’s position. The plan has not gone down well with shareholders, mainly T Rowe Price, which holds 26% in the company. Constant flip-flops in the selection process for a head have delayed the appointment of a CMD by a little over two years, since U K Sinha moved to head the Securities and Exchange Board of India. The appointment process has had its share of controversies. Earlier, shareholders had rejected Puri’s candidature as he did not have the qualifications specified in the advertisement for the post. Later, the ad was revised and that allowed UTI to consider Puri for the top position again. A proposal to appoint Jitesh Khosla, a bureaucrat, as the CMD met with opposition from T Rowe Price, as it felt he did not have the expertise to handle a mutual fund. 

Many AMCs are roping in new cadre of distributors to expand their distribution force. The recent reduction in the ARN fee, opening up of new channel of intermediaries called new cadre of distributors, and zero fees for first time ARN registration seem to be delivering good results. Since AMCs are allowed to charge a higher TER if they achieve their targeted B-15 inflows, they are putting greater effort to capitalize on the opportunity. UTI Mutual Fund has already roped in more than 500 new cadre of distributors. SBI Mutual Fund will provide two day training in the first phase at around 30 centres located in B-15 cities to train their new cadre of distributors and in the second phase, SBI will impart training in 100 centres across the country. Reliance Mutual Fund too is looking to add close to 1000 new distributors. LIC Nomura is planning to enroll distributors from Nagpur and Nashik to begin with. It is targeting to add at least 100 distributors from each city/town. While many large AMCs are looking to enroll new distributors, mid-sized players are looking at enrolling area representatives and trying to strengthen their existing network in B-15 cities.

Polaris Financial Technology will develop the online mutual fund platform - MF Utility - to be implmented by the Association of Mutual Funds in India. The platform, titled MF Utility, will work as a one-stop shop for the sale and purchase of mutual fund products across all fund houses. It is a web-enabled front-end application which will function as an order-routing tool connecting all the mutual funds by bringing their products onto one single online platform. MF Utility will help reduce transaction costs for the distributors of mutual funds while increasing the reach of the industry. The platform will provide investors with benefits such as a single login ID which would enable them access to the entire industry. Investors will be able to make single-cheque payments for multiple transactions, receive common account statements, have access to a complaints and feedback module and receive commom Cap Gain statement. From the distributor perspective, benefits involve bulk upload of transactions, cost saving, one view customer portfolio, client level alerts, among others. Polaris Financial Technology specialises in providing techonolgy solutions across the financial services industry.

The Institute of Company Secretaries of India (ICSI) signed a memorandum of understanding with National Institute of Securities Markets (NISM) in June 2013. The objective of the MoU is to achieve a common goal in promoting corporate governance and public policy, financial reporting and disclosures, inclusive growth and sustainable development, business environment, capacity building, corporate social responsibility, quality and assurance services.  The Institutes would jointly organise seminars, conferences, certificate programs for corporate and securities market professionals, as well as students’ exchange programmes.

AMCs are increasing their visibility through social media sites to connect with young professionals. Recently, Hindustan Times reported that India has the second largest Facebook users. So it is not surprising then that fund houses are getting active on social media sites in a bid to reach out to a larger audience, especially youngsters. Handling social media profiles has become an integral part of their marketing and business development strategies. Reliance, DSP BlackRock, UTI, Franklin Templeton, SBI, and ICICI Prudential are among the most active AMCs on Facebook and Twitter. Some of these fund houses have put together an internal team to update information on social media websites while others have outsourced the task to external agencies. Reliance Mutual Fund looks very active on their Facebook page and runs sections called RMF tube, risk profile, write to us section etc. on its page. DSP BlackRock shares videos related to financial awareness and also uploads images containing inspirational quotes while UTI posts financial quotes with photographs. ICICI Prudential puts the views of its fund manager and the CEO. It also runs opinion poll on its Facebook page. 

Reliance Mutual Fund received the award for “The Best Mutual Fund House” in India by Asia Investor, a leading publication in Asia Pacific and Japan. Asia Investors annual awards recognizes individuals and firms in the Asian securities servicing industry for exceptional performance, business growth, innovation and industry leadership in the Asia Pacific region. The publication presented country specific awards to 13 fund houses across Asia Pacific region and Japan. The winners were decided on the basis of their performance in the previous financial year, growth in the business, innovation and industry leadership.

Regulatory Rigmarole

The Association of Mutual Funds in India (AMFI) has mandated all executives of banks and distribution agencies to provide a consumer their Employee Unique Identification Number (EUIN) while selling mutual fund schemes. The move is aimed at making staffers accountable for what they sell, as various instances of mis-selling continue to plague the sector. The new rule took effect from June 1 2013, in all sale forms. To generate the EUIN, employees have to pass the examination of the National Institute of Securities Markets and then register with AMFI. The EUIN also acts as a credit score, tracking other activities of the seller like the number of sales done, the sort of investment advice given and so on.

In a bid to attract more distributors, AMFI has extended the fee waiver for new distributors from June 30 to September 2013.  The waiver of fee is for both ‘new cadre’ and people who register with AMFI for the first time. SEBI has allowed postal agents, retired government and semi-government officials (class III and above or equivalent), retired teachers and retired bank officers with a service of at least 10 years to register as new cadre of distributors.  AMFI has added another category of distributors like agents selling insurance, fixed deposits, national savings schemes, PPF, etc. who are registered with any other financial services regulator and business correspondents appointed by banks who can register as new cadre of distributors if they meet certain criteria.

SEBI may soon get to access call data records (CDR) of the entities under its probe. The finance ministry has written to the home ministry and the communication department to designate the capital markets regulator as an agency authorised to be a recipient of CDR information related to calls, emails and SMSes under the Indian Telegraph Act, 1885. However, SEBI will not have the power to tap phones of the suspect and will be able to only analyse the call details of the entities under its scanner. At present, only security agencies such as IB are allowed to access call data records of an individual. SEBI has been long demanding for such access in order to expose insider trading and other illegal activities by looking into the CDR of suspected entities. So far, the CDRs it has used in certain cases to prove charges against entities under its probe have been acquired from other authorised agencies. The regulator has been arguing that it often faces roadblocks in its investigations as seeking details from other agencies and explaining the reason for the same is often a very time consuming process.

Market regulator SEBI has notified guidelines for investment advisers and their 'associated persons', making it compulsory for them to get the required certifications to operate in the stock markets. Investment Advisers and their associated persons, including their representatives and partners, offering investment advice, shall obtain certification from the National Institute of Securities Markets (NISM) by passing the NISM-Series-X-A: Investment Adviser (Level 1) Certification Examination. If an 'associated person' has obtained certification by passing the NISM Certified Personal Financial Advisor (CPFA) examination as on the date of this notification, the person is not required to obtain such certification. The term 'associated person' refers to a permanent or temporary employee of an organisation operating in the Indian securities space. According to SEBI, such 'associated persons' can also obtain certification from organisations and institutions accredited by NISM.

According to the World Wealth Report 2013, released by Capgemini and RBC Wealth Management, the investible wealth of the world's High Net Worth Individuals (HNWIs) rebounded in 2012, growing by 10% to reach a record high of USD 46.2 trillion, after declining 1.7% in 2011. As many as one million individuals joined the global HNWI population, which reached 12 million, reflecting an increase of 9.2%. HNWI population increases were strong in 2012. However, North America's lead in both population and wealth is likely to be eclipsed again in the future by Asia-Pacific. Among the Asia Pacific countries, Hong Kong experienced a 35.7% increase in its HNWIs population, followed by India, with 22.2% growth. The growth in number of HNWIs in India was attributed to positive trends in equity market capitalisation, gross national income, consumption, and real estate. In Asia-Pacific, equity markets responded well to aggressive monetary policy moves. In India, reform measures and monetary easing helped equity markets gain by 23.9%, while strong exports in South Korea partly contributed to a 20.2% gain there. Going forward the future outlook looks cautiously upbeat, led by Asia-Pacific. According to the report, global HNWI wealth is forecast to grow by 6.5% annually over the next three years with the Asia-Pacific region projected to grow at one and a half times the global average at 9.8% and is expected to lead global growth. Despite a marked focus on capital preservation and high cash allocations, high net worth individuals achieved a record level of wealth in 2012, suggesting further growth lies ahead if trust and confidence in the markets increase further.