Monday, September 26, 2016

FUND FULCRUM
September 2016

Mutual fund industry's asset base rose to an all-time high of Rs 15.6 lakh crore at the end of August 2016, helped by strong inflows in income and equity segments. The industry, comprising 42 active players, had an average asset under management (AUM) of over Rs 15.2 lakh crore at the end of July 2016, which was also the previous high, according to the latest data of the Association of Mutual Funds in India (AMFI). Overall inflow in mutual fund schemes stood at Rs 25,332 crore at the end of August 2016 compared with an inflow of Rs 1.03 lakh crore in July 2016. Of this, income funds, which invest in a combination of government securities saw Rs 28,457 crore coming in while equity and equity-linked saving schemes witnessed an infusion of Rs 6,505 crore. However, liquid funds witnessed a pull out of over Rs 13,000 crore during the period under review. Showing a growing traction for mutual funds among investors, the number of folios has surged by over 21 lakh in the first five months of the ongoing fiscal to around 5 crore, mainly on account of strong participation from retail investors.This follows an addition of 59 lakh folios or investor accounts in the preceding financial year (2015-16) and 22 lakh in 2014-15. In the past two years, investor accounts increased mainly due to robust contribution from smaller towns.

Equity mutual funds witnessed an inflow of Rs 6,505 crore in August 2016, making it the highest in a year, mainly on account of optimistic investor sentiment. This also marks the fifth straight month of positive inflow in equity schemes. Prior to that, such funds had witnessed a pull out of Rs 1,370 crore in March 2016. Equity inflows are on a 1-year high because of positive climate and optimistic environment in both equity and debt markets. A slew of factors contributing to this buoyancy are well spread monsoon, better corporate results, smooth progress on GST Bill and positive data coming from US economy. In addition, monthly SIP (systematic investment plans) has crossed 1 crore SIPs and monthly net contributions through SIP alone is over Rs 3,000 crore leading to higher positive net inflows in equity markets. The robust inflow has pushed the assets under management (AUM) of equity mutual fund to a record high of Rs 4.67 lakh crore at the end of August from Rs 4.5 lakh crore in July 2016.

Piquant parade

PPFAS Mutual Fund, promoted by Parag Parikh Financial Advisory Services Pvt. Ltd. (PPFAS) has changed the name of its flagship scheme PPFAS Long Term Value Fund with effect from September 16, 2016. The only scheme offered by PPFAS Mutual Fund will now be known as Parag Parikh Long Term Value Fund. The fund has changed the scheme name to pay homage to its founder, late Parag Parikh, whose vision and actions have been instrumental in where PPFAS Mutual fund stands today. Given his standing and image in the industry, it has the potential to ensure better connect and recall among investors, as compared to the acronym. As on August 31, 2016 AUM of the scheme was Rs 687.45 crores out of which 12.81% was invested by the promoter group, management, and employees of the fund house.

Leading stock exchange NSE has decided to shift its mutual fund services platform to web-based system from January 2, 2017. Currently, the bourse is operating the MF platform through its fully automated screen trading system — National Exchange for Automated Trading (NEAT). The move to shift to a web-based mechanism would help to centralise transactions in mutual funds as well as streamline operational activities. “NEAT MFSS (mutual fund service system) shall be discontinued with effect from December 30, 2016, (end of business hours),” NSE said in a recent circular. “Only web-based MFSS platform shall be available for transactions in MFSS segment with effect from January 2, 2017,” it added.
Regulatory Rigmarole

SEBI has issued a circular in which it has allowed fund houses to increase exposure in housing finance companies (HFCs) from 5% to 10% of the net assets of the scheme. The circular is applicable with immediate effect. “Presently, the guidelines for sectoral exposure in debt oriented mutual fund schemes put a limit of 25% at the sector level and an additional exposure not exceeding 5% (over and above the limit of 25%) in financial services sector only to HFCs. In view of the role of HFCs especially in affordable housing space, it has now been decided to increase additional exposure limits provided for HFCs in financial services sector from 5% to 10%,” states SEBI circular. SEBI has clarified that such securities have to be rated AA and above and these issuer HFCs are registered with National Housing Bank (NHB). However, the total investment in HFCs cannot exceed 25% of the net assets of the scheme. After the Amtek auto incident, SEBI had reduced exposure limit to financial services sector to 25% of NAV from 30%. The exposure limit to Housing Finance Companies (HFCs) was brought down to 5% of NAV from 10% of NAV.
Karvy and CAMS have started providing feeds of direct plans to SEBI registered investment advisers. They have enabled a registration based and investor consent based data feed sharing with RIAs through their portal. After submitting the RIA registration form, R&Ts will share the login credentials with the RIA. In order to get investors data, RIAs are required to provide the investor consent letter with folio details to R&Ts. Based on the investor consent letter, R&Ts will tag the folio with the RIA code and RIAs will start getting transaction feeds as mail back services. Currently, there are around 450 RIAs registered with SEBI.
SEBI has directed AMCs to disclose the actual commission paid to distributors (in absolute terms) against the investor’s total investments in each scheme in the half-yearly consolidated account statements (CAS). This commission figure will include all direct monetary payments and other payments made in the form of gifts/rewards, trips, event sponsorships etc. by AMCs to distributors. SEBI has asked AMCs to mention that the commission figures are gross and does not exclude costs incurred by distributors such as service tax, operating expenses, etc.“The CAS will also disclose the scheme’s average total expense ratio (in percentage terms) for the half-year period for each scheme’s applicable plan (regular or direct or both) where the concerned investor has actually invested in,” states the circular. Further, SEBI has said that such half-yearly CAS should be issued to all MF investors, excluding those investors who do not have any holdings in MF schemes and where no commission against their investment has been paid to distributors.The regulator has also come out with a format for making this disclosure. The circular comes into effect from October 1, 2016. 
In a major relief to distributors, SEBI has excluded the requirement disclosing TER of direct plans in the half-yearly consolidated account statement (CAS) if an investor has invested in a regular plan. SEBI has come out with a format for making this disclosure in which it has indicated that investors of regular plan would not get information on details of TER of direct plan. Another key change that SEBI has made is the introduction of a footnote in the account statement saying that the commission paid to distributor is excluded of all taxes. Simply put, SEBI has asked AMCs to mention that the commission figures are gross and does not exclude costs incurred by distributors such as service tax, operating expenses, etc.
SEBI has directed AMCs to disclose the actual commission paid to distributors (in absolute terms) against the investor’s total investments in each scheme in the half-yearly consolidated account statements (CAS). This commission figure will include all direct monetary payments and other payments made in the form of gifts/rewards, trips, event sponsorships etc. by AMCs to distributors.
SEBI has decided to come out with a consultation paper proposing certain changes and clarifications in the IA Regulations. The consultation paper proposing certain changes and clarifications in the IA Regulations inter-alia, on the following points:
·         Re-look at the exemption from registration as an investment adviser provided to Mutual Fund Distributors, SEBI registered intermediaries, etc. for providing investment advice as an incidental activity to their primary activity. 
·     Granting of time period of three years to mutual fund distributors who seek to migrate as an investment adviser so as to enable them to obtain necessary certification and to comply with other requirements specified in IA Regulations.
·         Segregation of investment advisory services through a separate subsidiary within a period of three years.
·         Clarification in respect of investment product and investment advice given in electronic/broadcasting media.
·         Applicability of advertisement code to be followed by any person including the investment advisers while issuing advertisement.
·         Restriction on providing trading tips via bulk SMS, email, etc. and restriction on soliciting investors by offering schemes/competitions/games/leagues/etc. related to securities market and covering these activities under the advertisement code as well as under SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.
·         Clarity between the activities of investment adviser and research analyst.
·         Clarity on mode of acceptance of fee.
·         Requirement of providing ‘Rights and Obligations’ document to the clients.
·         Requirements for providing Online Investment Advisory Services and Use of Automated Tools.


Digital technology and artificial intelligence will be key enablers to the next phase of evolution of the mutual fund industry in India according to a report titled ‘Mutual Funds: Ready for the next leap’.Technologies such as mobile, social media, big data and analytics, cloud and artificial intelligence are key growth enablers for the mutual fund industry facilitating seamless customer acquisition and real-time efficient processes. These technologies can drive efficiency and cost reduction if adopted across key operations, spanning from transaction processing and fund management to distribution and customer service.“The impact of technology on the mutual fund industry cannot be understated. Tablet and mobile apps are helping increase reach in B-15 locations and the paper-less experience though e-KYC and technology enabled systematic investment plans are tapping the millennial customers. Furthermore, the new digitally powered entrants such as payment banks who are allowed to sell third-party mutual funds through their advanced technology platforms will revolutionize the reach and efficiency of the Indian mutual fund industry.

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