FUND FULCRUM

January 2017

The mutual fund industry has added more than Rs 3.5 lakh crore to its asset base in 2016, a record addition in the mutual fund industry's Assets Under Management (AUM). Fund houses are also working on their performance in 2017, while expecting investment from new investors to increase the growth of the sector. In addition, demonetisation of high-value currency notes could have a positive impact, with the industry betting high on conversion of cash assets into financial investments. The total AUM of all 43 active fund houses put together has increased by Rs 3.52 lakh crore, or over 26%, to a new record of Rs 16.93 lakh crore at the end of December 2016, which earlier stood at Rs 13.41 lakh crore in December 2015. November 2016 had recorded the previous all time high, when the asset base of the industry had increased to Rs 16.5 lakh crore. In 2015 and 2016 the equity markets have been more volatile with a lot more negative impact. The AUM increase translates into more investors staying invested, and new investors coming in.

Among the top five players, ICICI Prudential Mutual Fund led the pack with asset base of Rs 2,27,989 crore followed by HDFC Mutual Fund (Rs 2,21,825 crore), Reliance Mutual Fund (Rs 1,95,845 crore), Birla Sun Life Mutual Fund (Rs 1,80,808 crore), and SBI Mutual Fund (Rs 1,40,997 crore). Since April 2016, equity funds category has seen current financial year’s highest net inflow in the month of December 2016 i.e. Rs 14,029 crore which is Rs 1,324 crore higher than November 2016. Overall AUM of equity funds is now Rs 5.34 lakh crore, highest after October 2016 (Rs 5.45 lakh crore). Despite market being weak since November 2016, equity AUM has recovered due to fresh investments by the investors. As we still have three months to end the current financial year, we may close the financial year 2017 with highest ever equity and overall AUM in mutual funds. Investors' interest is continuously growing in equity investments. It is the right time to cash in on the opportunity, which has come after the demonetisation announcement, US elections, and US Central Bank action on their interest rates. SIPs, ELSS, and balanced funds have contributed sizably for overall equity inflows in the current year. In December 2016, balanced funds have seen an inflow of Rs 3,947 crore. It is Rs 315 crore higher than the previous month. Running SIP volume of approximately Rs 3,900 crore a month is a major support for fresh flows in the markets. On an annualized basis, it works out to more than Rs 46,000 crore and is increasing. On the other side, ELSS category has seen an inflow of Rs 907 crore in December 2016 and it is expected that it will bring higher inflows in the months between January to March 2017 because investors will be looking forward to tax saving options. ELSS, with attractive market valuations, is making a strong case for fresh investments. Out of the total investor accounts with 43 active fund houses, the number of folios rose to a record 52,820,155 at the end of December 2016, from 45,853,274 at December-end 2014, a gain of 69.67 lakh, according to SEBI. The momentum of retail participation from 2015 continued, and showed a remarkable recovery in market volatility last year too. Equity schemes have also contributed to the huge inflows. There was seen a infusion of Rs 2.86 lakh crore in mutual funds, while equity and ELSS alone attracted an impressive inflow of around Rs 51,000 crore.

AUM of the Indian mutual fund industry touched an all-time high of Rs 16.46 lakh crore in Dec 2016, according to data from the Association of Mutual Funds in India (AMFI). This translates into a compounded annualised growth rate of 18% from Rs 3.26 lakh crore AUM in Mar 2007. The robust performance of the mutual fund industry comes on the back of growing investor awareness and increased investments in Systematic Investment Plans (SIPs). Post demonetisation, interest rates have started declining and could have a positive bearing on the performance of debt-oriented mutual funds. Industry AUM had crossed Rs 10 lakh crore in May 2014, and it may reach the important milestone of Rs 20 lakh crore in the calendar year 2017, if market conditions remain favourable.

Assets under the liquid fund category increased 9.9% in Dec 2016 from the prior month. The short-term category witnessed net inflows in Dec 2016, while income and gilt categories saw net outflows. Liquid funds could be a game-changer if the instant liquidity feature initiated by a few fund houses in select debt schemes gains traction. Under the facility, redeemed units of a liquid fund get instantly credited to the bank account of the investor. Liquid funds could then give tough competition to savings accounts. Assets under gilt and income categories fell 8.8% and 4.6%, respectively. Gilt funds proved to be the biggest beneficiary of demonetisation as high liquidity in the banking system drove bond yields down. A falling interest rate regime suits long-term debt-oriented mutual fund categories such as gilt funds as bond prices are inversely proportional to interest rates and investors can take this as an opportunity to book profits.

Mutual funds saw net inflow of Rs 10,923 crore in Dec 2016, of which Rs 10,103 crore was in equity funds. This is the ninth straight month to witness positive inflows in equity schemes. Steady inflows from SIPs and increasing investor awareness have contributed to the category’s growth. In the current financial year, total mobilisation in equity schemes has been nearly Rs 51,000 crore. It is expected that the momentum will continue in the last quarter of FY17 as investors may opt for tax-saving options like Equity Linked Saving Schemes (ELSS). As per AMFI data, total amount collected through SIP in Dec 2016 was Rs 3,973 crore. In FY17, the mutual fund industry on an average has added about 6.19 lakh SIP accounts every month. The average ticket size has been around Rs 3,200 per SIP account.

In Dec 2016, more than seven lakh new folios were added. Total folio count at the end of the month was 5.2 crore, which is 1.5% higher than Nov 2016 and 10.8% than Mar 2016. During the month, one lakh new folios were added to the ELSS category, while equity, balanced, and ETF categories together witnessed addition of over five lakh folios. Folio count grew across all debt categories, and in the liquid category it doubled from the Mar 2016 level. However, de-growth was seen in gold ETFs.

AUM from B15 cities increased 32.4% against industry growth of 26% in the 12-month period ended Nov 2016, driven by investor-friendly initiatives by regulators and investor-education campaigns of AMCs. The proportion of equity to non-equity schemes is more evenly distributed in B15 cities compared with T15 cities. In T15 cities, it is skewed towards non-equity schemes due to the presence of institutional investors. In Nov 2016, equity-oriented schemes accounted for 27% of T15 assets, whereas it was 49% for B15, according to AMFI data.

Piquant Parade

BNP Paribas Mutual Fund has been the 26^th fund house to join the mutual fund utility. With the addition of BNP Paribas and the acquisition of JP Morgan by Edelweiss, the AUM of the funds participating in MF Utility is close to 94% of the industry. The distributors of the company will have more convenience like paperless transactions called TransactEezz; ability to provide login facility to their customers through Distributor Initiated Login (DIL); and various other conveniences that MFU is bringing to the table. This has been guaranteed by the various international awards MFU has won in London and Kuala Lumpur. MF Utility has launched many features for distributors and investors such as e-CAN (Common Account Number) facility, which allows distributors and investors to open a CAN online for individual investors. BNP Paribas Mutual Fund recently was awarded the best industry infrastructure initiative award in the financial services category, at The Banking Technology Awards event, held in London.

By buying 2 lakh shares from the open market, Birla Sun Life Asset Management Company has raised its stake to 9.01% in ICRA, which is a rating company. Birla Sun Life Asset Management would pay Rs 81.3 crore, at closing market price. The mutual fund company had 7% stake in the rating agency, before buying 2 lakh shares through an open market transaction. Birla Sun Life Asset Management Company, the investment manager of Birla Sun Life Mutual Fund, is a joint venture between the Aditya Birla Group and the Sun Life Financial Inc., of Canada. The joint venture brings together Aditya Birla Group's experience in the Indian market and Sun Life's global presence.

To be continued…..