Monday, April 24, 2017

April 2017

The Assets Under Management (AUM) of the Indian mutual fund industry witnessed an exceptional growth of 42% in the FY2017. According to Association of Mutual Funds in India (AMFI) data, AUM grew from Rs. 12.3 lakh crore in March 2016 to Rs. 17.5 lakh crore in March 2017. The Quarterly Average Assets Under Management (QAAUM) also registered a QoQ growth of 8% in the last quarter of FY2017. The growth can be attributed to strong retail participation and overall market gains. FY2017 turned out to be a very good year for the mutual fund industry with investors pouring in Rs. 3.4 lakh crore across categories. The net inflows in liquid, income and equity (including Equity Linked Savings Schemes or ELSS) categories have been to the tune of Rs. 1.2 lakh crore, Rs. 0.96 lakh crore, and Rs. 0.70 lakh crore, respectively. Equity funds (including ELSS) witnessed net inflows of Rs. 8,216 crore in March 2017 compared with Rs. 6,462 crore in February 2017. In March 2017, the assets of Equity funds (including ELSS) reached an all-time high of Rs. 5.4 lakh crore. The category witnessed MoM jump of 4.5% and YoY growth of 40.7%. In FY2017, total inflow in the category has been Rs. 70,367 crore with net inflows in every month. Retail participation in the equity category is high because of the popularity of the Systematic Investment Plan (SIP) route. According to AMFI, the mutual fund industry added about 6.2 lakh SIP accounts every month on an average during FY2017 (till February 2017), with an average ticket size of Rs. 3,100 per account.
The total folio count at the end of March 2017 stood at 5.54 crore, 1.9% higher than February 2017, according to data from the Securities and Exchange Board of India (SEBI). In FY2017, the mutual fund industry added 77.4 lakh new folios or around 6.4 lakh new folios every month despite volatility in overall market conditions. March 2017 saw the highest number of folios added in a month in FY2017 at 10.1 lakh. The growth was driven by the ELSS category that added 3.2 lakh folios in the month. Out of the 10.1 lakh folios, 7.4 lakh came from the equity (including the ELSS) category. The folio count for the liquid category more than doubled in FY2017, suggesting retail investors are looking at this route for surplus cash deposit.

SBI Mutual Fund saw the highest growth in its AUM in absolute terms. The fund house has added over Rs.16,000 crore to its kitty to reach 1.57 lakh crore AUM in March 2017 as against Rs.1.41 lakh crore in December 2016, a growth of 11%. HDFC Mutual Fund and Reliance Mutual Fund closely follow SBI in terms of AUM growth in absolute terms. Both the fund houses added over Rs.15,000 crore to their AUM kitty. In terms of size, fund houses like ICICI Prudential, HDFC, Reliance and Birla Sun Life still rule the roost with the highest recorded AUM for the last quarter at Rs.2.43 lakh crore, Rs.2.37 lakh crore, Rs. 2.11 lakh crore and Rs.1.95 lakh crore respectively. In terms of percentage, emerging fund houses like Mahindra, IIFL and BOI AXA have recorded growth of 37%, 33% and 23% respectively, largely on account of small base. The growth is largely due to sustained inflows in equity funds through SIP and mark to market gain. While fund houses have been receiving close to Rs.4000 crore each month through SIP, BSE Sensex has gained 11% in the last quarter of FY 2015-16. Thanks to increasing participation of retail investors in mutual fund through SIP and mark to market gain, the industry has witnessed a healthy growth in its assets in FY 2016-17.

Piquant Parade

BSE Star Mutual Fund distribution platform claims to have received nearly 10 lakh orders in March 2017. The total value of these orders is over Rs. 15000 crore. The platform has received over 1 lakh order in a single day on March 10, March 15 and March 27.The number of transactions has doubled in FY 2016-17. Such transactions have increased from 33 lakh in FY 2015-16 to 65.5 lakh in FY 2016-17. In terms of value, it has grown to Rs.75,000 crore in FY 16-17 from Rs.44,000 crore in FY 15-16. It is now the largest distribution platform for mutual funds in India. Currently, there are 3400 members registered with the platform of which 1340 members are active.

Tata Sons are planning to globalise their mutual fund by getting a foreign strategic partner, who will hold a stake of at least 26%. Discussions were underway with Vanguard Group, Allianz SE, Japanese and Belgian asset management firms. Currently, Tata Sons hold 67.9% stake in Tata Asset Management; and the remaining 22.09% is with Tata Investment Corporation.

AMFI, the mutual fund industry body has launched a multimedia campaign, as a part of the investor awareness programme. The campaign will aim to position mutual funds as a preferred investment option. The core message will be “Mutual Funds Sahi Hai”, and will be delivered through different media outlets such as TV, Digital, radio, print, cinema and outdoor hoardings. The campaign will aim at assuring the prospective investors that mutual funds are the right option for them. To improve the investment environment in equity markets, and to create awareness on mutual funds as a distinct asset class, SEBI has mandated mutual funds to set apart two basis points (bps) of their net assets for investor education. 1 bps of the said collection, i.e. half the amount given out by each fund house will be used by the financial literacy committee of AMFI to spread financial awareness.

While the mutual fund industry is spending a large sum of money on television and digital platforms to spread awareness, newspapers and distributors remain the major sources of information for mutual fund investors. In a survey called SEBI Investor Survey (SIS) 2015, the market regulator has found that many investors prefer traditional channels such as newspapers, distributors and SID to gather information about mutual funds. While 55% of respondents acquire information about mutual funds through newspapers, 47% rely on mutual fund distributors for this information. Another key source of information for the mutual fund investors is friends and family members. SEBI has said that the influence of financial intermediaries and word of mouth marketing are extremely important in the mutual fund market. Surprisingly, mutual fund investors do not prefer acquiring information through internet and television. SEBI attributed this to a large number of young population in this segment. SEBI said, “It has remained a young person’s domain with 75% of internet users below the age of 34, 16% of users in the 35-44 years range, and only 9% users over the age of 45-64. Since Indian investors tend to be older (average age of surveyed investors is 41 years), despite the rising internet penetration in India and the large television audiences in the country, information flow concerning mutual funds and new fund offerings is still controlled by traditional news sources. According to the SIS 2015 data, although 55% of investors acquire information concerning mutual funds from newspapers, a mere 24 percent use the Internet to receive information while an equal percentage procures this information from television,” said SEBI. However, SEBI believes that investors will increasingly leverage digital media to access the information about mutual funds in future.

Regulatory Rigmarole

SEBI has instructed credit rating agencies (CRAs) to give one-month notice to investors before withdrawing ratings from any open end mutual fund. In a circular, SEBI has said, “Open ended mutual fund schemes being perpetual in nature and having no specified maturity, withdrawal of rating of such schemes is permitted. However, as units of such schemes are held by many investors, such ratings shall be placed on notice of withdrawal for at least 30 days, which shall be publicly available on the CRA’s website.” In addition, CRAs will have to cite appropriate reasons on withdrawal of rating. Further, CRAs will have to issue a press issue before such a withdrawal. Typically, credit rating agencies incorporate assessment of debt funds depending on investment objectives, management and creditworthiness of the portfolio. Though credit rating gives confidence to investors and distributors, the fund selection largely depends on the portfolio of a scheme. Further, the market regulator has asked CRAs to withdraw their ratings after receiving request from AMCs. Currently, very few AMCs use CRAs to rate their funds. The primary purpose is to cater to institutional clients as such clients have internal guidelines for selecting a fund for investments.

The Securities and Exchange Board of India is mulling a review of performance benchmark index for mutual fund schemes. The country's market regulator is considering a Total Returns Index for benchmarking equity mutual fund schemes. Currently, equity schemes are benchmarked against exchange provided indices Sensex and Nifty. SEBI’s argument for bringing a new index is that while computing the net asset value of any scheme it takes into consideration the valuation of security and also needs to factor in the dividend or the corporate announcement. Say an equity scheme is benchmarked against the Nifty. Suppose the Nifty has given 8 percent and the scheme has delivered 10 percent return in one year. Within this scheme, return 1.5-2 percent dividend yield is also included. So, when the Net Asset Value performance is compared to Nifty, it is misleading as it does not consider the dividend yield. This means SEBI may change a methodology to calculate NAV of an equity scheme. Also, these guidelines will be in line with global standards as SEBI gradually intends to move towards uniform calculation standards adopted overseas. As per Global Investment Performance Standards or GIPS, all portfolios must be valued in consonance of fair valuation. In 2012, SEBI had amended regulations to incorporate the fair valuation norms, which prescribes that "in order to ensure that there is fair treatment to all investors, including prospective investors, the portfolio should be valued on the principles of fair valuations and it should be reflective of the realizable value of the assets". The SEBI regulations also prescribed that a uniform method should be used to calculate Total Returns. In total returns index, it assumes that the figure representing returns, is a measure after all dividends are re-invested. However, the practice of dividend distribution is not uniform across all equity mutual fund schemes. A few schemes also have the dividend option and a few have only growth option. A total returns index may not be a uniform measurement for both the dividend and growth schemes. While total return index will more aptly represent portfolio stocks that regularly issue dividends, some Nifty stocks may not issue dividends, whereas a total return index assumes all stocks issued dividends. If a regulator decides to go ahead with Total Return Index, it needs to address this dichotomy to avoid confusion among investors. Further, it remains to be seen whether the National Stock Exchange and the Bombay Stock Exchange will follow suit and make a total returns index on Nifty and Sensex public and transparent on a daily basis to enable the fund industry have a transparent benchmark provided by exchanges. SEBI may have to address the issue with the exchanges. In the reform of mutual fund regulations in 2012, when realisable value of assets was installed as the fair value principle, this was the over-riding principle for all valuations. Thus, re-prescribing a standard formula will take the situation back to the prescription days again rather than the principle-based days (Principle based regulation is high on IOSCO [International Organisation of Securities Commission] agenda in developed markets). If a total return index is prescribed, the actual total returns for each equity portfolio may be different. So, will a single formula based Total Returns Index do justice to all schemes in that category? That is the question that SEBI has to consider.

SEBI’s Investor Survey (SIS) 2015 had some key findings on mutual fund investors. Among the 5,356 respondents with financial investments, around 66% (or 3,536 investors) have put money in mutual funds, making mutual funds the most favoured financial instrument among Indian investors. The survey found that 42% of the mutual fund investors are regular investors; 60% of them prefer the SIP route; 88% are aware that schemes can be bought and sold online, but the medium is not used frequently; 24% use exchanges and platforms offered by stock exchanges for their investment; 58% claimed that they will continue with their investment even in market volatility, but only 25% hold onto their investments beyond three years.

Monday, April 17, 2017


April 2017

There has been a surge in NFO schemes in the equity mutual fund segment in recent months amidst a strong rally in share prices. In the financial year 2016-17, the mutual fund sector saw 29 equity NFOs, both open-ended as well as closed-end. As many as 25 of them hit the market in the second half, September to March period,  garnering assets worth Rs. 4220 crore though new launches are only a fraction of what is collected in the existing funds. Of the 25 new launches, 19 were closed-end schemes.

NFOs of various hues adorn the April 2017 NFONEST.

Sundaram Select Microcap Fund – Series XIV

Opens: April 10, 2017
Closes: April 24, 2017

Sundaram Mutual Fund has launched a new fund named as Sundaram Select Microcap Fund - Series XIV, a close ended equity fund. The tenure of the fund is 5 years from the date of allotment. The objective of the fund is to seek capital appreciation by investing predominantly in equity/equity-related instruments of companies that can be termed as micro-caps. A company whose market capitalisation is equal to or lower than that of the 301st stock by market cap on the NSE at the time of investment will be considered to be in microcap category. Benchmark Index for the fund is S&P BSE Small Cap Index. The fund managers are Mr. S. Krishnakumar and Mr. Dwijendra Srivastava.

UTI Capital Protection Oriented Fund – Series IX-I

Opens: April 12, 2017
Closes: April 26, 2017

UTI Mutual Fund has launched UTI Capital Protection Oriented Fund – Series IX-I, a close-ended Capital Protection Oriented Income Fund. The fund matures 1467 days from the date of allotment. The investment objective of the fund is to endeavour to protect the capital by investing in high quality fixed income securities as the primary objective and generate capital appreciation by investing in equity and equity related instruments as secondary objective. The product is suitable for investors who are seeking capital protection at maturity and capital appreciation over medium term by investing in debt and money market securities (70%-100%) and equity and equity related instruments (0%-30%). The fund is benchmarked against CRISIL MIP Blended Index. The fund managers are Mr. Sunil Patil and Mr. V. Srivatsa.      

Mahindra Mutual Fund Badhat Yojana

Opens: April 20, 2017
Closes: May 4, 2017

Mahindra Mutual Fund has launched a new open ended equity fund Mahindra Mutual Fund Badhat Yojana. The investment objective of the fund is to provide medium to long term capital appreciation through appropriate diversification by investing predominantly in equity and equity related securities including derivatives and taking low risk on business quality. The fund will be managed by Mr. Ratish Warier.

Mahindra Mutual Fund Bal Vikas Yojana

Opens: April 20, 2017
Closes: May 4, 2017

Mahindra Mutual Fund has launched Mahindra Mutual Fund Bal Vikas Yojana, an open ended balanced fund. The investment objective of the fund is to generate long term capital appreciation through investments in equity and equity related instruments and also income from investing in debt and money market instrument. Investments in this fund can be made only in the name of the minor child and contributions in the investment account could be made by all family members and friends. The fund offers optional lock-in investment till the child turns 18 years old. The fund will be benchmarked against CRISIL Balanced Fund Index. The fund managers are Ratish Varier and Rahul Pal.

Sundaram Long Term Micro Cap Tax Advantage Fund – Series V

Opens: March 29, 2017
Closes: June 29, 2017

Sundaram Mutual Fund has launched a new fund Sundaram Long Term Micro Cap Tax Advantage Fund – Series V is a 10 year close ended equity linked savings scheme. The investment objective of the fund is to generate capital appreciation over a period of ten years by predominantly investing in equity and equity-related instruments of companies that can be termed as micro-cap. For the purpose of investment by the scheme 'Micro cap' stock is defined as one whose market cap is equal to or lower than the 301st Stock by market cap (after sorting the securities in the descending order of market capitalization) on the National Stock Exchange of India limited, Mumbai, at the time of investment. The fund is benchmarked against the Nifty Small Cap 100 Index. The fund managers are S Krishnakumar and Dwijendra Srivastava.

Birla Sun Life Pharma and Healthcare Fund, Sundaram TOP 100 – Series VIII & IX, Sundaram Value Fund – Series IX-X, Birla Dual Advantage Fund – Series 2&3 and Axis Dual Advantage Fund – Series 1-4 are expected to be launched in the coming months. 

Monday, April 10, 2017


April 2017

All the GEMs from the 2016 GEMGAZE have performed reasonably well through thick and thin and figure prominently in the 2017 GEMGAZE too. 

Principal Global Opportunities Fund Gem

Incorporated in March 2004, Principal Global Opportunities Fund has an AUM of Rs 16 crore. The one-year return of the fund is 14.97% as against the average returns of 13.1% of the Benchmark Index MSCI World. It is a feeder fund and invests in Principal Global Investors – Emerging Market Equity. So, the fund invests primarily in the finance sector with 99.39% of the assets in equity.  The expense ratio of the fund is 0.96%. The fund is efficiently managed by Mr. Rajat Jain since its inception.

Templeton India Equity Income Fund Gem

The Rs 959 crore Templeton India Equity Income Fund, incorporated in May 2006, has earned a one-year return of 26.81% slightly trailing the category average return of 27.09%. Top five holdings constitute 30.47% of the portfolio with finance, auto and energy forming the top three sectors. Equity constitutes 95.92% of the portfolio with the rest of the assets in cash. While the portfolio turnover ratio is 27%, the expense ratio is very high at 2.52%. The fund is benchmarked against the S&P BSE 200. The fund is managed by Vikas Chiranewal since its inception.

DHFL Pramerica Top Euroland Offshore Fund Gem

DHFL Pramerica Top Euroland Offshore Fund, incorporated in September 2007, has an AUM of Rs 9 crore. Its one-year return is 4.26%, lower than most of its peers. 98.67% of the portfolio is made up of equity with the rest in cash. It is a feeder fund and invests in DHFL Pramerica Top Euroland Offshore Fund. So, the fund invests primarily in the finance sector with 98.67% of the assets in equity. The expense ratio of the fund is 2.33%. The fund is benchmarked against the MSCI EMU Index. The fund is managed by Kumaresh Ramakrishnan since inception and Akash Singhania since December 2012.

Sundaram Global Advantage Fund Gem

Sundaram Global Advantage Fund is a nine-year old fund with an AUM of Rs 21 crore. Its one-year return is 13.76%, higher than most of its peers. The entire assets allocated to equity are 95% with finance being the prime sector in which the fund’s assets are invested. The expense ratio of the fund is moderate at 1.53%. The fund is benchmarked against the MSCI Emerging Markets Index. The fund has been managed by Shiv Chanani since July 2016.

ICICI Prudential Indo Asia Equity Fund Gem

Incorporated in October 2007, ICICI Prudential Equity Arbitrage Fund has an AUM of Rs 155 crore. The one-year return of the fund is 33.2% racing ahead of the category average of 27.09%. The top three sectors are construction, finance and technology. Top five holdings constitute 35.8% of the portfolio, with the equity exposure at 93.52% and debt constituting 6.32% of the portfolio. The portfolio turnover ratio is a towering 132% and the expense ratio is 2.55%. The fund is benchmarked against the Nifty 50 (65%) and MSCI AC Far East Free Ex-Japan (35%). The fund is managed by Shalya Shah since October 2014, Shankar Naren and Atul Patel since February 2015 and Ihab Dalwai since October 2016.

Monday, April 03, 2017

April 2017

Global Funds…

A study provided by Vanguard stated that 30%-40% of investors’ stock portion of their portfolio should consist of international stocks. Investors typically have a significant bias towards owning investments within their own country—this is known as home country bias—so by diversifying internationally, investors can gain exposure they would otherwise be neglecting. Furthermore, investing internationally adds both rewards and risks, including currency risks and taxation as debt funds, but it can add the much needed diversification to a portfolio, especially if their home country suffers a serious economic recession.

…still evolving

Global funds are still evolving in India. Assets under management of such schemes, which invest in global markets, have fallen by 30% in the two years to June 2016, according to data from ValueResearch, a mutual fund tracker. In the same period, total assets managed by Indian mutual funds rose 41.6%. The total assets managed under 41 such schemes is now Rs.2,567 crore, less than 1% of the total corpus of the mutual fund industry.

Great risks, great rewards

Several international funds, including gold-based funds, commodity-linked funds as well as US-based funds, have given good returns in 2016. In fact, as a category, international funds returned close to 16% last year. However, it is not a good idea to generalize the whole basket of international funds as one category, as different funds have vastly diverse themes.

There are three different kinds of international funds that asset management companies in India offer. The first is those funds that invest directly into global markets. Then there are those called as feeder funds that invest into an existing global fund and the third kind are fund of funds, which invest in several different international funds.

Another reason why returns in this category can be extremely divergent is the fund objective. For example, there are some funds that invest based on a particular region. Then there are others that invest based on specific themes such as commodity-linked funds, gold-based funds, etc.

On the face of it, 2016 seems to have been a great year for international funds, with some of the gold and commodity-linked funds giving returns ranging from 50% to 70%, which has boosted the category average returns to 16%. However, without these funds, and taking into account only the equity-based funds, the average returns fall to below 10%. Another important point to note is that the same gold and commodity funds that saw spectacular returns in 2016, have given negative or low single digit returns in a three-year window.

Performance dissected…

Money went to US schemes in 2013 as performance of Indian markets was below par and the US markets were doing well. However, interest has dried up and investors now remain focused on Indian markets. US stock gauges such as the Dow Jones Industrial Average and S&P500 have gained about 12% in the two years to June 2016 compared to a drop of 16% for the MSCI emerging markets index and 9.55% for the Sensex. According to Morningstar data, Franklin India Feeder US Opportunities Fund, one of the largest such international fund schemes, has seen its assets under management fall to Rs.667.01 crore at the end of June 2016, down 15.5% from two years earlier. Other US-focused schemes such as ICICI Prudential US Bluechip Equity Fund, J.P. Morgan’s US Value Equity Offshore Fund and DSP BlackRock US Flexible Equity Fund have also seen a similar decline in assets managed over the last two years.

Funds that have focused on Europe have fared far worse as returns from these markets were flat in the two years to June 2016 or negative in some cases leading investors to pull out money. J.P. Morgan’s Europe Dynamic Equity Offshore Fund has lost 76.41% in assets under management in the two years to June 2016 while Invesco India Pan European Equity Fund and Franklin India Feeder European Growth Fund have lost 80.95% and 49.91%, according to Morningstar data.

Gold-related schemes have seen inflows reflecting the sharp rise in underlying commodity and gold mining stocks. DSP BlackRock World Gold Fund’s assets managed, for instance, have risen to Rs.357.64 crore at the end of June 2016, up 18.9% from two years ago, according to Morningstar data. Gold prices are up close to 28.1% since January 1, 2017, the best year-to-date performance in nearly three decades as investors sought safe haven assets amid global political and economic uncertainty and made bullion the year’s most preferred investment.

Re-look at returns

Global funds available in India have given mixed returns. In India, there are 33 global funds, which are commodity, country and region-specific. Over the last three years, these have given an average annual return of 11 per cent, with returns from individual funds varying from 0.5 per cent to 20 per cent. Out of 33 funds which are diversified or theme-based, ING Global Real Estate and Fidelity International Opportunities Fund have been top performers with over 17 per cent annual returns in the last three years. Both invest directly in shares of foreign countries. On the flip side, Birla Sun Life Global Precious Metals Fund has given a return of only 0.5 per cent.

The Bottomline

The need for diversification remains low but some global schemes have done well in the last couple of years. Investors need to warm up a little towards international markets schemes. Even fund houses need to provide more information to investors and promote the schemes well. That is missing at the moment. Some of the global schemes of Indian AMCs are not promoted well enough and independent financial advisors are largely focused on Indian markets. However, it is a good idea to hold dollar assets to the tune of 5-8% or even 10% of the total portfolio size.

Investors looking to diversify within equity can invest in international funds. Sometimes Indian equity investors also suffer from risks that may be country-specific such as the recent accusations of policy paralysis in the government. Global funds may mitigate these risks to an extent. While any kind of investment involves risk, including international mutual funds, investing in international funds presents unique risks including political, currency, regulatory and economic. The key is for the investors to do their homework, and understand where the investment’s exposure will be. Understanding any political risks can also be important before making any investment decision. To be vigilant, investors should set a target, monitor the allocation, and continually rebalance while keeping an eye on any developments within the portfolio. International mutual funds may not fit with a conservative person’s investment portfolio, but looking outside their domestic market may reward those investors seeking additional returns especially as global trade continues to expand and the world’s economies grow. Despite short-term volatility, historically, international equity markets have had favorable prospects for continued growth. International mutual funds can capitalize on that potential.