Monday, February 23, 2015


February 2015

The year 2015 has begun on a good note for the mutual fund industry.  Thanks to healthy inflows in equity and liquid funds, the mutual fund industry’s assets grew by 12% or Rs. 1.30 lakh crore from Rs.10.51 lakh crore in December 2014 to touch an all-time high of Rs.11.81 lakh crore in January 2015. The country's 45 fund houses together had an average AUM of Rs 11,81,356 crore at the end of January 31, 2015 up from Rs 10,51,343 crore at the end of December 2014, according to the data by Association of mutual funds in India (AMFI). The AUM data for individual fund houses is not being disclosed. Besides, retail participation in equity schemes has increased significantly during the recent months. The fund houses together witnessed an inflow of more than Rs 1 lakh crore. During January 2015, BSE's benchmark Sensex grew by over 1,683 points or nearly 6%. The share of equity oriented schemes in mutual fund assets has been growing since March 2014, increasing from 22% to 30% in December 2014. The proportionate share of debt-oriented schemes has fallen from 52% to 45% during the same period.

Equity mutual funds witnessed an addition of over 16 lakh investor accounts or folios in the first 10 months of the current fiscal (2014-15) in view of a sharp rally in the stock market. According to Securities and Exchange Board of India data on investor accounts with 45 fund houses, the number of equity folios rose to 30,799,002 in January 2015, from 29,180,922 for the whole of last fiscal ending March 31, 2014 - a gain of 16,18,080 folios. The addition in equity folios is in line with BSE's benchmark Sensex surging by 30% in the ten months of the current financial year. Moreover, mutual funds industry reported net inflows of nearly Rs 56,000 crore in equity funds in the April-January period, which helped the industry grow its folio count. Overall, the industry retail folios surged to 4.07 crore at January-end 2015 from 3.95 crore at the end of March 2014.

In January 2015, the industry received net inflows of Rs. 85,848 crore in liquid funds. Apart from inflows in liquid funds, equity funds too saw net inflows of Rs. 6,324 crore in January 2015.  Investors poured in over Rs.13,000 crore in equity funds (new launches and existing schemes) while redemptions stood at Rs. 6,600 crore.  As a result, the total AAUM of equity funds (including ELSS) reached an all-time high of Rs.3.40 lakh crore in January 2015. Since the beginning of FY 2014-15, equity funds have seen positive inflows each consecutive month. From April 2014 to January 2015, the industry has attracted inflows of over Rs. 57,000 crore in equity funds. Investors flocked to income and gilt funds on expectations of a further rate cut by RBI. In January 2015, RBI slashed repo rate by 25 basis points which resulted in healthy inflows in both income and gilt funds. Income funds, which saw a marginal outflow of Rs.1,632 crore in December 2014, received net inflows of Rs.12,000 crore in January 2015. Gilt funds received net inflows of over Rs.1,800 crore in January 2015. Investors continued to shun gold ETFs due its lackluster performance. The category saw net outflows of Rs.131 crore in January 2015. Meanwhile, other ETFs, which track the equity indices, received inflows of Rs. 128 crore in January 2015. Overseas fund of funds saw net outflows of Rs.102 crore in January 2015. Last month, overseas FOFs saw net outflows of Rs.162 crore. There are 31 international funds in the industry which manage Rs. 2,500 crore. 

The contribution of the country's smaller towns -- known as beyond-15 cities (B15) -- to mutual funds asset base has surged by 31% over the last nine months of the current fiscal (2014-15) to Rs 1.85 lakh crore. Mutual Funds assets under management (AUM) from B15 locations grew from Rs 1.41 lakh crore during March 2014 to Rs 1.85 lakh crore at the end of December 2014, according to data from the Association of Mutual Funds of India (AMFI). About 16.3% of the assets of the mutual fund industry came from B15 locations in December 2014 as compared to 15.6% in March 2014. However, the share of T15 locations or top 15 cities in the assets of the mutual fund industry, dropped from 84.4% to 83.7% during the period under review. Together, all 45 mutual fund houses manage assets worth over Rs 11 lakh crore. The increase in contribution from B15 cities can be attributed to investor awareness and education programmes by mutual fund houses as well as incentive schemes launched by capital markets regulator SEBI. B15 cities are those which are beyond these top 15 cities -- New Delhi (including NCR) Mumbai (including Thane & Navi Mumbai), Kolkata, Chennai, Bangalore, Ahmedabad, Baroda, Chandigarh, Hyderabad, Jaipur, Kanpur, Lucknow, Panjim, Pune, and Surat. Interestingly, the rate of growth in assets for B15 locations was higher than industry average of 26%. B15 locations have a better balance of equity and non-equity assets. T15 locations are skewed in favour of non-equity assets due to the concentration of institutional investors, according to AMFI. There was a shift away from non-equity schemes to equity schemes since March 2014. This was more marked in T15 locations. 

Piquant Parade
L&T Mutual Fund, a subsidiary of L&T Finance Holdings, became one of India's primary brands to launch a Facebook application for its investors. The Facebook app will allow investors to view their L&T Mutual Fund portfolios with latest valuation. The app, which is named GoInvest, is designed to ease the exchange of information between investors and the brand, while managing to sustain their interest and educate them on the mutual funds industry. GoInvest also features a convenient option to request an account statement by email. This move will allow investors to execute actions from the familiar comfort of their Facebook accounts and this is what makes it unique and customer oriented.

Axis Mutual Fund, the asset management arm of Axis Bank, has launched 'EasySell', the online platform that empowers distributors to carry out the entire transaction process digitally, without the hassle of filling any document, thereby saving time for investors.  EasySell offers a hassle-free and convenient way of transacting, as it does away with the need for paper work and saves a lot of time. Distributors empanelled with Axis Mutual Fund can use the EasySell service, by completing a simple registration process on EasySell portal. The service also provides security to investors. In case of any transaction initiated by the distributor, an alert message will be sent to the investor’s mobile number requesting approval on transaction through Axis Mutual Fund EasyApp.

Competition Commission has approved, Japanese financial services giant, Nippon's proposed deal to hike its stake in India's top fund house Reliance Mutual Fund to 49% in multiple tranches. The Japan-based firm already holds 26% stake in RCAM, which it had acquired for Rs 1,450 crore in 2012 while valuing the company at Rs 5,600 crore at that time. Under the proposed deal, Nippon Life Insurance Company would first acquire 9% additional stake of Reliance Capital Asset Management Limited for about Rs 657 crore. Further, Nippon would have the option to hike its stake to 49% in multiple tranches at prices to be determined on the basis of  future prevailing assets and profitability of the company that are expected to be higher than the current levels.

Yes Bank will enter into the mutual fund business next fiscal through organic or inorganic route. The asset management company of Yes Bank will complement the bank's retail strategy.

Regulatory Rigmarole

From March 1, 2015 investors will have unified single statement for all dematerialised accounts across the capital market products, according to the National Securities Depository Ltd (NSDL). This means that an investor would get a unique ID number through which a comprehensive picture of all his/her market investments will be available in one statement. The information of demat accounts for equity, debt, bond and mutual fund investments of one individual investor or entity will formally be clubbed in a single statement. A digital connection has already been established for such an exercise. This is a first step towards achieving single demat account for all financial assets. Initially, the demat accounts synchronisation and unification of all SEBI-regulated capital market products have been taken up. All other dematerialised products would gradually come under one umbrella account in future.
Mutual funds may soon be unable to dole out steep commissions to distributors and find it tough to send them to exotic locales for selling their products. Securities and Exchange Board of India is planning to cap the upfront commission that mutual funds pay distributors and get the industry to move to a predominantly trail-fee model, in which fees are paid in a staggered manner till the time their clients remain invested in a scheme. capital market regulator is considering limiting the total value of upfront fees, jaunts, and various sales contests at 50 basis points in addition to the trail fee. This means the money that fund houses pay distributors or spend on them at the time of selling the scheme should not exceed this amount. Currently, there are no restrictions on how much a mutual fund can spend on distributors as long as it is financed from its pocket. Sebi's decision to impose such restrictions on selling of mutual funds comes in the wake of the high commissions the industry paid distributors last year to sell new fund offers (NFOs).
In the fund management industry, dominated by the stalwarts, there are quite a few small ones who have been around for a long time or have entered in the last few years in the space. Some weaker ones either surrendered (sold out) or are stagnating. However, there are a few Davids who are walking their own path to create a space for themselves in this financial jungle dominated by the Goliaths. The David has to be different to stand out because he cannot otherwise survive against the Goliath with the same offering and strategies as the bigger players. These Davids are setting new benchmarks in the otherwise Goliath dominated fund management industry. They are successfully penetrating the investors mind and are able to get a slice of their wallet. Setting new benchmarks with 'Client First' initiatives are always welcome. Historically the Davids have created a niche in the industry and the Goliaths are ready to buy out these businesses when the Davids want to exit due to different reasons. This creates a safety net for long term investors. Besides, the regulator (SEBI) is proactive and investor centric, thus, taking away the fear of an investor of being left high and dry. To sum it up, be an informed investor and invest to meet your goals. The industry is becoming more and more client centric, with some niche players playing a bigger role.

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