Monday, April 25, 2016

April 2016

Investors pulled out over Rs 73,000 crore from various mutual fund schemes in March 2016, primarily due to high redemptions in liquid funds. Despite this, mutual fund schemes saw a net inflow of Rs 1.34 lakh crore in 2015-16. In comparison, mutual funds had witnessed an inflow of Rs 1.03 lakh crore in the preceding financial year. According to the data from the Association of Mutual Funds in India (AMFI), total redemptions from mutual fund schemes stood at Rs 73,113 crore in February 2016 as compared to Rs 1,09,897 crore in March 2015. The latest outflow was mainly driven by contribution from liquid or money market segment. Besides, income segment too witnessed outflow. Liquid or money market segment witnessed redemptions to the tune of Rs 58,605 crore last month, while income segment saw net outflow of Rs 14,048 crore. In addition, equity funds saw net outflow of Rs 3,206 crore. Overall, the asset base of the country's fund houses stood at Rs 13.53 lakh crore in March 2016 from Rs 11.88 lakh crore at the end of March 2015.
Equity mutual funds witnessed an outflow of Rs 1,370 crore in March 2016, making it the first pull out in two years amid profit booking. Fund managers invested Rs 74,024 crores in the equity mutual funds in the entire fiscal ended March 31, 2016. According to data with the Association of Mutual Funds in India, equity and equity-linked saving schemes saw a net withdrawal of funds to the tune of Rs 1,370 crore. This was the first outflow since March 2014, when equity mutual funds had witnessed a pull out of Rs 1,935 crore. Prior to the latest outflow, equity mutual funds have seen a slowdown in the inflows. Equity schemes received funds worth Rs 2,522 crore in February 2016, lower than Rs 2,914 crore in January 2016 and Rs 3,644 crore in December 2015. However, in 2015, equity mutual funds saw an average monthly inflow of Rs 7,550 crore. Despite huge outflow in March 2016, mutual funds registered a big net inflow of Rs 74,024 crore in the financial year 2015-16. In comparison, fund managers invested a net sum of Rs 71,029 crore in 2014-15. 
Showing a growing traction for mutual funds among investors, the number of folios have grown by over 59 lakh last fiscal, primarily on account of robust contribution from smaller towns. This follows an addition of 22 lakh folios or investors' accounts in the preceding financial year (2014-15). According to the Securities and Exchange Board of India (SEBI) data on investor accounts with 43 fund houses, the number of folios jumped to a record 4,76,63,024 in February 2016 from 4,1,740,206 in March 2016, a gain of 59.23 lakh. For a long time, investors accounts were not going beyond 2 crore. Out of 59 lakh folios added last financial year, more than 25 lakh have come from towns beyond top-15 cities. Besides, equity folios witnessed an addition of over 43 lakh to 3.60 crore folios. Mutual funds have reported net inflows of Rs 1.34 lakh crore in total schemes. Equity and equity-linked saving schemes alone account for over Rs 74,000 crore in the total inflows helping the industry grow the folio count. Interestingly, smaller towns have contributed 44% of such inflows. 
Piquant Parade
SEBI’s latest data on ‘Status of Mutual Fund Applications’ as on March 1, 2016 shows that Yes Bank, Fortune Financial Services & Credit Capital, Trust Investment Advisors, and Karvy Stock Broking are awaiting approval from SEBI to launch mutual fund business in India. While Yes Bank and Fortune Financial Services & Credit Capital have approached SEBI in November 2015 and June 2015 respectively, Trust Investment Advisors had applied for a license in September 2014. Karvy Stock Broking is waiting to get in-principle approval from SEBI since five years. It had applied for AMC license in November 2011. Interestingly, all four companies have a mutual fund distribution arm. AMFI data shows that Yes Bank, Trust Investment Advisors and Karvy Stock Broking have assets under advisory (AUA) of Rs.678 crore, Rs. 1,115 crore, and Rs. 5,056 crore respectively as on March 2015. The AUA details of Fortune Financial Services are not available in the AMFI’s list of top 500 distributors. 
The Competition Commission has approved Japanese financial services major Nomura's 35% stake sale in the mutual fund business jointly run with LIC. Under the deal, Nomura Asset Management Strategic Investments PTE will sell its stake in LIC Nomura Mutual Fund AMC and LIC Nomura Mutual Fund Trustee Company. 
MF Utility has bagged ‘The Annual Globe Tigers 2016 Award’ for the best industry infrastructure initiative in the financial services category. The company has been awarded for bringing innovation in the financial services industry. The Golden Globe Tigers Award aims to recognize "TIGERS" in marketing, branding CSR and social innovation, education and academic across leadership levels in individual and organization. Launched in January 2015, MF Utilities is an initiative by AMFI to aggregate transactions in the mutual fund industry in order to bring in scalability and remove duplication of activities. It enables distributors and direct investors to open a single account called CAN to invest in multiple schemes. So far, more than 34,000 CANs have been opened by the investors. The company claims that over 1,000 distributors are using MF Utilities to execute transactions.
Regulatory Rigmarole 
Salaries of AMC officials earning Rs. 60 lakh per annum and above in FY 2015-16 will be uploaded on their respective websites by April 30, 2016. SEBI said that AMCs/MFs should disclose this information within one month from the end of the respective financial year (effective from FY 2015-16). SEBI believes that this move will improve transparency in remuneration policies so that executive remuneration is aligned with the interest of investors. 
The Securities and Exchange Board of India (SEBI) has rejected a mutual fund industry proposal to allow them to keep apart risky assets from the rest of their holdings and cap redemption, mentioning that it will motivate fund managers to take unnecessary risks. In March 2016, the Association of Mutual Funds of India (AMFI) approached the capital market regulator to provide rules for the creation of a so-called side pocket when a specific investment faces a credit risk as a way to insulate the broader portfolio from redemption pressure. JP Morgan Asset Management (India) Pvt. Ltd followed this concept last year even though there were no clear guidelines in place.
AMFI has communicated to distributors that from May 1, 2016 only National Automated Clearing House (NACH) mandate forms would be accepted. The new system will replace ECS forms. NACH was supposed to be implemented from March 1, 2016 but National Payments Corporation of India (NPCI) at the behest of AMFI extended this deadline to May 1, 2016. NPCI is an umbrella organization for all retail payments system in India. Taking into account the lead time required for NACH process, AMFI has asked distributors to use only NACH forms from April 20 for registering new SIP mandates. Distributors can collect NACH forms either from AMC offices or their websites. For new SIP registrations, ECS forms will be rejected after April 20, 2016. Existing ECS mandates would continue to be operative till the validity of the mandate. AMFI has said that the current SIP registration process would remain the same. Instead of ECS forms, distributors will now have to collect NACH forms from clients. NACH does not replace existing direct debit arrangements some AMCs may have with clients. As of now, registering a SIP through ECS mandate, takes up to 30-35 days. However, most banks, especially private sector banks issue mandates within 15-20 days. With NACH, the turnaround is expected to reduce to only up to 10 days as banks have to answer within T+5 days to confirm the transaction. Also, NACH is cost effective as compared to ECS as it entails less paperwork. NACH can help investors and distributors in a big way. Earlier, distributors had to register multiple mandates if their clients wanted to invest through SIP in say, four different schemes. With the new system, distributors can register four SIPs through one mandate. The process has become simpler even in case of lump sum investments. NACH can be also utilized to pay utility bills and insurance premiums. NACH is a one-time registration process which gives flexibility to investors to invest lump sum and through SIP without having to make individual payments each time.
In order to curb mis-selling of third party products by banks, RBI has introduced sweeping changes in the way banks sell mutual funds and insurance schemes in its guidelines on investment advisory services of banks. RBI has mandated banks to register with SEBI under Registered Investment Advisor (RIA) norms to distribute third party products like mutual funds. The banking regulator has clarified that banks will have to segregate other departments of the bank and the investment advisory services of banks. It has asked banks to form a subsidiary to offer such services and instructed them to maintain an arm’s length distance between banks and its investment advisory subsidiary. Further, RBI has instructed banks to adhere to KYC in accordance with their respective regulators to distribute third party products. “Mis-selling raises serious consumer protection issues. Further, as observed from the recent allegations, wealth management activities as well as marketing third party products can expose banks to serious reputational risks. Bank employees were directly receiving incentives from third parties such as insurance, mutual fund and other entities for selling their products,” stated the draft released on June 28, 2013. RBI has given bank a time-frame of three years to banks to comply with these norms.

Following SEBI’s diktat, the mutual fund industry will start contributing one basis point of AUM to AMFI from April 2016. AMCs are supposed to give 50% of their IAP fund in the first week of every month to AMFI, i.e. they will hand over the IAP corpus accumulated in April in the first week of May. Also, AMCs have already shared 50% of the unspent IAP corpus accrued till March 2016 to AMFI. Based on AUM of Rs. 12.32 lakh crore as on March 2016, AMFI will have Rs. 123 crore to invest in creating awareness about mutual funds this year. This means the industry body will get Rs. 10 crore every month from the industry. With this sizeable budget at AMFI’s disposal, its committee on financial literacy is expected to discuss the ways to promote mutual funds at the industry level on a bigger scale.

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