Monday, August 31, 2015


July-August 2015

Buoyed by strong inflows in equities, the asset base of the country's mutual fund industry surged by around Rs 39,000 crore to jump over Rs 12 lakh crore during the April-June 2015 quarter of the current financial year. The country's 44 fund houses together had an average assets under management (AUM) of Rs 11.88 lakh crore during January-March quarter of 2014-15 as compared to Rs 12.27 lakh crore in the first quarter of the current financial year, according to the latest data available with AMFI. The assets base figure could rise further as few fund houses are yet to disclose their quarterly numbers. The quarterly rise in AUM is largely on account of inflows in equities. Besides, retail participation in equity schemes has increased significantly during the recent months. HDFC Mutual Fund has retained its top position with an average AUM of Rs 1.65 lakh crore, a surge in asset base by 2.1%, while ICICI Prudential Mutual Fund's asset base grew by 4.7% to Rs 1.55 lakh crore. In the top league, HDFC Mutual Fund and ICICI Prudential Mutual Fund are followed by Reliance Mutual Fund (Rs 1.45 lakh crore), Birla Sunlife Mutual Fund (Rs 1.25 lakh crore), and UTI Mutual Fund (Rs 92,730 crore) in terms of average AUM in the first quarter of 2015-16.  HDFC Mutual Fund's AUM retained its top position across fund houses in the June quarter with respect to the total assets managed. The fund's average AUM moved up 2.1% or by Rs 3379 crore to Rs 1.65 lakh crore. ICICI Prudential Mutual Fund maintained the second position at Rs 1.55 lakh crore, up 4.7% or by Rs 6963 crore. Reliance Mutual Fund was ranked third at Rs 1.45 lakh crore; its average assets rose by 5.5% or by Rs 7569 crores. In terms of asset gainers, Mutual fund managers continue to keep faith in equities, putting in nearly Rs 33,000 crore in April-June 2015, primarily driven by strong participation of retail investors. This compares with an inflow of more than Rs 70,000 crore for the whole of 2014-15. Fund managers invested a net amount of Rs 32,933 crore in equities and equity-linked saving schemes during the first quarter (April-June) of the current financial year, data from the Association of Mutual Funds in India (AMFI) showed. Of the total, equity Mutual Funds attracted Rs 12,273 crore in June 2015 while the same stood at Rs 10,076 crore in May 2015 and Rs 10,584 crore in April 2015. In comparison, equity mutual funds saw an inflow of Rs 9,066 crore in the April-June quarter of 2014-15.

Equity mutual funds witnessed an addition of over 11 lakh investor accounts or folios in the first four months of the current fiscal (2015-16), primarily on the back of strong retail participation. This follows an addition of 25 lakh folios for the entire fiscal, 2014-15. Folios are numbers designated for individual investor accounts, though one investor can have multiple ones. According to Securities and Exchange Board of India (SEBI) data on investor accounts with 44 fund houses, the number of equity folios jumped to 32,858,830 in July 2015 from 31,691,619 in March 2015, translating to a gain of 11.67 lakh. April 2014 saw the first rise in more than four years. Mutual funds reported net inflows of nearly Rs 39,000 crore in equity schemes in the April-July period of 2015-16, helping the industry grow its folio count. Besides, addition in equity folios helped increase overall folio base to 4.32 crore in June 2015 from 4.17 crore at the end of March 2015.

Investors have pulled out a little over Rs 25,000 crore from various mutual fund schemes in June 2015, with money markets contributing the most to the outflow. The move comes following an inflow of about Rs 1.12 lakh crore into mutual fund products in the preceding two months (April-May). According to data from the Association of Mutual Funds in India, investors withdrew a net Rs 25,085 crore in mutual fund schemes last month. Investors withdrew capital from the liquid or money market instruments last month but they continued to be bullish on the equity schemes. Equity and equity linked schemes saw an inflow of Rs 12,273 crore last month, the second-highest into equity mutual funds ever. The June 2015 net inflows are second only to Rs 13,700 crore seen in January 2008. However, liquid or money market category witnessed an outflow of about Rs 47,330 crore, while Gold ETF (Exchange Traded Funds) saw a pull out of Rs 76 crore. With the latest outflow, the net inflow in the schemes was at Rs 85,727 crore in the first quarter (April-June) of the current fiscal, 2015-16. There are 44 mutual funds in the country and their total Average Asset Under Management stands at Rs 11.73 lakh crore at the end of June 2015.

Piquant Parade

In a fresh crackdown on Saharas, regulator SEBI cancelled the registration of Sahara Mutual Fund saying it was no longer 'fit and proper' to carry out mutual fund business and ordered transfer of its operations to another fund house. Sahara group has been engaged in a long-running regulatory and legal battle with SEBI ever since the regulator ordered refund of a massive amount of over Rs 24,000 crore by two Sahara entities. Recently, SEBI had also cancelled the Portfolio Management licence of a Sahara firm. In the latest order, SEBI directed cancellation of Sahara Mutual Fund's certificate of registration on expiry of a six-month period. Sebi also directed Sahara Mutual Fund and Sahara Asset Management Company to stop accepting subscription from its existing or new investors with immediate effect. Besides, Sahara Mutual Fund has been asked to "make efforts to transfer the activities of Sahara India Financial Corporation Limited (Sahara Sponsor) and Sahara Asset Management Company Private Limited (Sahara AMC) to a new Sponsor and a Sebi-approved Asset Management Company at the earliest." Sahara Mutual Fund's Board of Trustees have been asked to "oversee and ensure protection of the unit-holders' interests during the above period". The Board of Trustees would need to be re-constituted after the transfer, according to SEBI. If Sahara Mutual Fund fails to complete the process of transition within five months, it would have to compulsorily redeem the units allotted to its investors and credit the respective funds to its investors, without any additional cost, within a period of 30 days thereafter and wind up the operations of the Mutual Fund.

UTI Mutual Fund has introduced a facility called "CanServe" for investments under UTI Balanced Fund, UTI Spread Fund, and UTI Mastershare Unit Scheme. "CanServe" will enable investors to contribute their dividend payouts if they are under dividend payout option or specified amounts as desired, if they are under growth option towards a medical cause. To provide this platform to investors, UTI Mutual Fund has entered into an agreement with St. Jude India ChildCare Centres. Contributions under "CanServe" facility will go to St Jude India ChildCare Centres as donation for needy and under-privileged children who are being treated for cancer and their families, during the period of the child's treatment. Under the Dividend payout option, investors by opting for 'CanServe' Option can donate the dividend payout to be declared on a prospective basis. The investors will have a choice to donate either i) 50% of the dividend declared or ii) 100% of the dividend declared, in future subject to a minimum amount of donation of Rs.1000/-. Under the Growth option, investors by opting for 'CanServe' facility can contribute by indicating a specified amount (Minimum Rs. 1000/- at each half yearly payout) to be paid out under this facility by redeeming corresponding units on semi-annual basis.

ICICI Securities, one of India's leading onlineinvestment service providers, has launched a completely online and paperless investment account under the name 'Insta Account' to allow KYC compliant resident Indian to invest in the country's mutual fund schemes. There are no extra charges to open an Insta Account on its website With an ICICIdirect Insta Account, ICICI Direct has done away with the traditional way of paper documents and has ensured ease and convenience to investors by leveraging the efficiency of technology. Investors who are already KYC compliant would be able to use any of their existing internet banking account to make an investment and utilize the in-depth research reports for their mutual fund investment. However, the step from ICICI Securities has come at a time when several of the leading fund houses in India are offering this service for more than a year now. Further, going through individual fund houses' website, an investor is treated as direct investor (if he choses the direct option), thereby he incurs less expenses.

UTI Buddy is a Mobile Application which is aimed at helping the IFA by simplifying the operational requirements. With UTI Buddy an IFA can initiate transaction recommendations easily to their investors and complete the entire purchase cycle in a couple of clicks. This application is available on Android and Apple devices.
UTI Buddy offers the following features to its IFAs:
·         Recommend Funds: IFAs can recommend schemes to their mandate registered investors. Post which an SMS is sent to the investor. Investors can then confirm the transaction by replying to a given short code along with a one time password.
·         Commission Structure: IFAs can now check scheme wise commission structures and view commission statements on the go.
·         UTI Summit (Reward & Recognition Program): Enables IFAs to track their Summit reward points and view program brochure and reward structures.
·         My Account: Includes view of IFAs last 20 commercial transactions, view of IFA portfolio summary and track investor portfolio for transactions attributed to the IFA.
·         IFAs can watch various fund manager videos and also track scheme NAVs etc.
The singular objective of this mobile application is to aid IFAs in the financial planning process for their investors by reducing the leg work required. In the first phase UTI Mutual Fund is launching this mobile application with transaction initiation facility. Subsequently it will enable other facilities like switchover, registering of SIP mandates, and redemptions.

Regulatory Rigmarole

Industry body AMFI has eased the norms for upfront commission payments of systematic investment plan schemes. This would help AMFI provide incentives to mutual funds’ distributors. The revised commission structure is in effect since July 1, 2015. Mutual fund houses are permitted to pay up to one per cent upfront commission for a three-year period, rather than monthly commission on the installments for SIPs, as per the new relaxed norms. Owing to SEBI objecting the high commissions going to the mutual fund agents, the fund houses had earlier been asked to keep the fee as 1% starting April 1, 2015. Owing to decline in fresh sales after huge inflows witnessed in the last one year, AMFI decided to take this step and the new fee structure would help in drawing retail clients.

The liability to pay the service tax will fall on the mutual funds and the asset management companies, according to CBEC. However, the mutual funds and AMCs can set off the service tax paid by them against the service tax payable on their output services. This CBEC stance has come as big relief for mutual fund distributors who had cried foul over the Budget announcement to withdraw service tax exemption and bring them under the service tax net. Small-time distributors of mutual funds were finding the going tough as they faced some squeeze in margins given that they had to pay the tax out of their pockets. With the Centre increasing the service tax rate to 14% in this year’s Budget, the levy was seen to be harsh if imposed on the distributors, who anyway were working on slim high commissions. The commission structure in mutual fund distribution had come down drastically over the recent years, leading to an exodus of people from the industry. Currently, there are only about 6,000 people actively engaged in mutual fund distribution among the registered universe of over one lakh individuals. Nearly 95% of the investments into mutual fund schemes in India come through distributors.

The long-awaited shift of household savings from physical to financial assets is finally happening. One lament among economic commentators was the average Indian household’s tendency to funnel its savings into physical assets—gold and real estate. Physical assets accounted for more than two-thirds of household savings in 2012-13 (the last year for which data is available), up from 48% five years earlier. It was widely believed that high inflation was the reason for households turning away from financial assets. That trend is changing as households return to financial savings. Net inflows into equity mutual funds are reaching levels last seen in the heyday of the bull run in 2008. As long as financial assets continue to hold the promise of higher yields, savers would move away from physical assets. That is extremely positive for the markets, as domestic inflows into mutual funds would support equity prices at a time when foreign inflows are likely to dwindle due to concerns about the US Federal Reserve raising rates.