Monday, January 25, 2016

January 2016

The country's 44 fund houses together had an average assets under management (AUM) of Rs 11.06 lakh crore at the end of December 2014, compared to Rs 13.39 lakh crore registered in December-end 2015, as per latest data available with Association of Mutual Funds in India (AMFI). Strong participation from retail investors and robust inflow in equity schemes helped the mutual fund industry's asset base soar by 21.1% to Rs 13.4 lakh crore in 2015. The top five fund houses -- HDFC MF, ICICI Prudential MF, Reliance MF, Birla Sunlife MF and UTI MF -- retained their top five positions from last year. HDFC MF continued to hold its numero uno position with an average AUM of Rs 1.78 lakh crore, a surge in asset base by 18.5%, followed by ICICI Prudential MF, which saw its asset base growing by 26% to Rs 1.72 lakh crore. Reliance MF's AUM climbed 24.5% to Rs 1.57 lakh crore, Birla Sunlife MF's assets base went up 26.5% to Rs 1.26 lakh crore and the assets under management of UTI MF increased 21.4% to Rs 1.06 lakh crore. Among others, Kotak Mahindra MF's assets base shot up by 41.5% to Rs 54,902 crore, while that of SBI MF zoomed 38.7% to over Rs 1 lakh crore. The yearly rise in AUM is largely on account of huge inflow in equity and equity-oriented schemes. In addition, retail participation increased significantly during the year. Equity assets crossed the Rs 4 lakh crore mark for the first time in the history of Indian mutual fund industry, signalling the return of domestic investors taking the mutual funds route. The average AUM of long maturity debt funds, including debt and gilt funds, rose 56% in 2015 as a series of repo rate cuts by RBI boosted sentiment. The central bank brought down the key rate by 1.25% over the year to 6.75%, citing lower inflationary pressure and the need to boost the economy. 

Investors have pumped in a whopping Rs 1.62 lakh crore into various mutual fund schemes in the first 9 months of the current fiscal, mainly in equity and money market categories. In contrast, inflows worth Rs 87,942 crore were witnessed in the April-December period of last fiscal. As per the latest data available with the Securities and Exchange Board of India, investors put in a net Rs 1,61,696 crore in mutual fund schemes during April-November period of 2015-16. Investors have put in most of the money in equity and 'liquid' or money market category. Equity and equity linked schemes witnessed an inflow of Rs 69,958, while 'liquid' or money saw an investment of Rs 53,220 crore. Further, balanced funds and income funds registered an inflow of Rs 17,844 crore and Rs 14,697 crore respectively. However, Gold ETFs saw an outflow of Rs 575 crore. The robust inflow has helped mutual funds asset base to reach Rs 13.41 lakh crore at the end of December 2015 from Rs 11.88 lakh crore in March 2015.

Piquant parade

To attract retail investors, mutual fund houses are contemplating "robo" advisory route, wherein automated algorithm-based advice will be provided without human intervention. The move will help in reducing the cost for investing in a mutual fund scheme and eventually attract retail investors. Online wealth management services provide robo advisory in India but such services are still in a nascent stage. However, it has become popular globally. Robo advisors use algorithms to develop an asset allocation plan and help in investment. They also help clients to monitor their savings and deviation in their asset allocations against the target. Several fund houses are considering the idea of robo advisory service to attract retail investors. They help customers make more informed decision on what to buy and how much of an asset type to buy. The platform offers a very simple, user-friendly interface and is quite convenient even for non tech-savy investors.

AMFI has requested the Ministry of Finance to introduce Mutual Fund Linked Retirement Plans (MFLRP) under 80 CCD. Section 80 CCD of the Income Tax Act provides tax benefits over and above the 80 C limit, which is currently Rs.1.5 lakh annually. Investors get tax deduction of up to 10% of salary subject to up to Rs.1 lakh on contribution towards pension funds. This is applicable in National Pension Scheme (NPS) currently. Last year, SEBI had proposed that a long term product like MFLRP with tax incentive can play a significant role in mobilizing household savings into capital markets. Also, in 2013, the draft Budget document had a mention on uniform tax treatment for pension fund and MFLRP. If implemented, fund houses can launch these products by getting approval from SEBI directly. Currently, fund houses need to take approval of Central Board of Direct Tax (CBDT) on a case-to-case basis to provide tax benefits to investors. Many fund houses like Axis, DSP BlackRock, HDFC, Pramerica and SBI have already filed draft offer documents with SEBI to launch Mutual Fund Retirement Linked Pension Plans and are awaiting approval from CBDT. Reliance Mutual Fund has launched its tax saving cum pension scheme called Reliance Retirement Fund after receiving pension fund status from CBDT. The other two funds which had received pension fund status long back are UTI-Retirement Benefit Pension Fund and Franklin India Pension Plan. Both (ELSS and MFLRP) these demands have been pending with the Finance Ministry since a long time now. The mutual fund industry is hoping that their demands will be met in the forthcoming Budget.
After allowing distributors to initiate online transactions through TransactEzz facility last month, MF Utility has extended this facility to investors too. This facility will enable investors to invest in direct plans as well as regular plans from January 1, 2016. Investors were allowed to transact in direct plans through physical mode since the time MF Utility was launched. Now, the only difference is that online transaction facility has been extended to investors. To avail this facility, investors are required to request MF Utility to provide user ID and transaction password. So far, AMCs have been offering online transaction facility in direct plans on their websites. However, investors have to go to each AMC’s website to transact in direct plans. With the launch of MF Utility, all schemes of 25 fund houses will be available at the click of a button. Allowing direct investors in MF Utility has created anxiety among some mutual fund distributors. They fear that their existing clients may start investing in direct plans if this facility is provided in MF Utility. However, merely facilitation of transaction on MF Utility will not lead to a shift to direct plans.
Regulatory Rigmarole

Last month, AMFI had sent a letter to fund houses communicating SEBI’s approval on providing feeds of direct plans to both distributors and RIAs. It has now clarified that AMCs can provide feeds of direct plans only to SEBI Registered Investment Advisers (RIAs) and not mutual fund distributors. In the letter, AMFI has said, “On a review, the AMFI Board felt that the data feed should be provided only to SEBI RIAs who help the investors under direct plan to track their portfolios and not to MF distributors.” Fund houses will have to take prior approval of investors before sharing it with the RIAs. Investors will be required to give their consent in a standard format which is being worked out by AMFI. Also, SEBI has asked fund houses to issue a periodic declaration authorized by the trustees of AMCs that no consideration or brokerage is being paid to RIAs for such a service. Currently, there are just over 357 RIAs in India of which 188 are individuals.
SEBI has allowed fund houses to deploy up to 20% of the net assets of Gold ETFs in the government’s Gold Monetization Scheme (GMS). In a circular, SEBI has said, “As  per  RBI  notification,  the  Gold  Monetization Scheme,  2015 (GMS)  will  replace  the Gold  Deposit  Scheme,  1999  (GDS). However, the deposits outstanding under the GDS will be allowed to run till maturity unless these are withdrawn by the depositors prematurely. Considering the above, in partial modification, it has been decided that GMS will also be designated as a gold related instrument, in line with GDS of Banks. However, the  cumulative  investment  by  Gold  ETF  in  GDS  and  GMS  will  not  exceed  20%  of total AUM of such schemes. All other conditions applicable to investments in GDS of banks will also be applicable to investments by Gold ETFs in GMS.” A few months back, RBI had issued operational guidelines for GMS in which it had allowed mutual funds to invest in GMS offered by banks. GMS enables households and jewelers to keep their gold with banks and earn interest on it. The deposits under this scheme can be made for a short-term period of 1-3 years (with a roll out in multiples of one year); a medium-term period of 5-7 years and a long-term period of 12-15 years. Similar to a fixed deposit, breaking of lock-in period will be allowed in either of the options and there would be a penalty on premature redemption (including part withdrawal). The minimum deposit should be equivalent to 30 grams of gold of 995 fineness. There is no maximum limit for deposit under this scheme. The gold will be accepted at the Collection and Purity Testing Centres (CPTC) certified by Bureau of Indian Standards (BIS) and notified by the Central Government. The deposit certificates will be issued by banks in equivalence of 995 fineness of gold.

The mutual fund industry has ended the logjam on AMFI’s new commission guidelines. After SEBI Chief U. K. Sinha’s strict warning, all AMCs have started following a uniform commission structure from January 1, 2016. SEBI chief U. K. Sinha had recently warned that the regulator would intervene if AMFI did not come to a consensus on this issue. AMFI, in its board meeting held in December 2015, had directed all AMCs to abide by its new commission guidelines in spirit from January 1, 2016. SEBI had to intervene in this matter as a few AMCs were not adhering to AMFI’s best practices circular on new commission payouts.
SEBI has asked fund houses to give 50% of the two basis points corpus meant for investor awareness programs (IAP) to AMFI. If SEBI’s proposal is accepted by AMCs, AMFI will utilize this corpus to conduct IAPs across the country on its own. SEBI has mandated AMCs to invest two basis points of their assets under management on investor awareness activities. Typically, AMCs take help from independent agencies, distributors and media houses to conduct IAPs. In fact, some AMCs have tied up with regional newspapers to reach out to the hinterland. Last year, at the CII MF Summit, SEBI Chief U.K Sinha had urged AMCs to improve the quality of investor awareness campaigns and utilize the two basis points of AUM set aside for investor education more effectively. Based on the current AUM, AMCs have Rs.260 crore at their disposal to spend on IAPs. AMFI data shows that since beginning i.e. from May 2010 to December 2015, 40 AMCs have conducted 60,270 programs in 485 cities covering over 19.50 lakh participants.

In an irony of sorts, foreign players have begun cashing out in a big way from the Indian mutual fund industry when its total asset base is fast nearing Rs 15-lakh crore mark and fund houses are upbeat about future growth prospects with retail investors joining the party. At the end of year 2015, data showed that total Asset Under Management (AUM) of the mutual fund industry crossed Rs 13.5 lakh crore mark for the first time, while more than 50 lakh new investor accounts were added that year. The performance stands out even better when seen in the context of the equities market not performing so well. The industry is hopeful of trebling its AUM to around Rs 40 lakh crore over the next three years. 

No comments: