FUND FULCRUM

May 2017

The new financial year started on a positive note for the Indian mutual fund industry as it came within striking distance of the Rs. 20 lakh crore milestone and could touch the magic figure in June 2017 itself if industry assets grow by another 4%. According to data from Association of Mutual Funds in India (AMFI), the Assets Under Management (AUM) of the Indian mutual fund industry grew 9.8% from Rs. 17.54 lakh crore in March 2017 to Rs. 19.26 lakh crore in April 2017. Of the Rs. 1.5 lakh crore that investors pumped in different categories in April 2017, liquid, income and equity funds (including Equity Linked Savings Schemes or ELSS) saw the highest inflows. The three categories saw net inflows of Rs. 0.99 lakh crore, Rs. 0.35 lakh crore and Rs. 0.09 lakh crore, respectively. Equity funds also got support from the broader market rally as BSE Sensex touched an all-time high of 30,000 in April 2017. Secular growth of Systematic Investment Plans (SIPs) and investor awareness campaigns have been the two mainstays of the Indian mutual fund industry in the recent past.

Mutual fund houses added over 77 lakh investor accounts in 2016-17, taking the total tally to a record 5.54 crore on growing interest of retail as well as HNI investors. In comparison, 59 lakh folios were added in the preceding fiscal. In the last two years, investor accounts have increased following robust contribution from smaller towns. Folios are numbers designated to individual investor accounts, though an investor can have multiple ones. According to AMFI data on total investor accounts with 42 active fund houses, the number of folios rose to a record 5,53,99,631 at the end of March 2017, from 4,76,63,024 at the end of March 2016, a gain of 16% or 77.37 lakh. Growing participation from retail as well as HNI categories have helped in raising overall investor accounts. Individually, HNIs' folios rose by 39% to 25.12 lakh. Last fiscal saw a surge in the number of retail investor accounts, which comprises equity, equity-linked saving schemes and balanced categories, by 15% to 5.23 crore. The fiscal year 2016-17 saw retail and HNI folios touching the highs of March 2010. These folios took almost six years to get back to the March 2010 levels of 4.76 crore. They crossed this mark in June 2016 and as of March 2017 stood at 5.48 crore.

Mutual fund managers purchased stocks worth close to Rs 10,000 crore in April 2017, making it the highest investment in five months, on sustained participation by retail investors. This comes on top of over Rs 51,000 crore investment in stocks in the entire 2016-17 financial year. Fund houses are upbeat about the industry's performance in the ongoing fiscal while expecting investment from new investors to fuel the growth of the sector. As per data released by the Securities and Exchange Board of India (SEBI), mutual fund managers invested a net sum of Rs 9,918 crore in stock markets in April 2017, much higher than the Rs 4,191 crore infused in March 2017. This was the highest infusion by fund managers since November 2016, when they had invested a net sum of Rs 13,775 crore in stock markets. Apart from equities, fund managers invested a staggering Rs 58,000 crore in debt markets in April 2017.

HDFC Mutual Fund is still the largest fund house in terms of equity AUM. The fund house lost its top position as the mutual fund house managing the largest AUM last year to ICICI Prudential Mutual Fund but it turned out to be a winner in the equity AUM category. HDFC Mutual Fund manages a total AUM of Rs.2.37 lakh crore of which 40% of the assets is in equity funds. Equity AUM of the fund house has increased by over 45% from Rs. 63,900 crore in FY 2015-16 to Rs. 93,000 crore in FY 2016-17. This growth can be attributed to the performance of their funds and strong distribution network of the fund house. ICICI Prudential Mutual Fund which currently manages the largest AUM in the industry stood at the second position with an equity AUM of Rs. 89,377 crore. Similarly, Reliance Mutual Fund stood at third position with equity AUM of close to Rs.67,000 crore. In terms of percentage, SBI Mutual Fund recorded highest equity AUM growth last fiscal. The fund house witnessed 92% growth in equity AUM from Rs.34,165 crore to Rs.65,744 crore. This could be partially due to inflows in ETFs because of EPFO’s contribution. Schemes whose assets have increased manifold in the last year include SBI Bluechip Fund and SBI Magnum Taxgain Scheme. In fact, the AUM of SBI Bluechip has increased from nearly Rs.5,000 crore in March 2016 to Rs.13,000 crore in March 2017. Overall, the total equity AUM of the top 10 fund houses stood at Rs.5.16 lakh crore as on March 2017. Interestingly, this indicates that the top 10 fund houses account for nearly 82% of the total equity AUM in the industry. The total equity AUM of the industry grew by 46% to Rs.6,30  lakh crore as on March 31, 2017 as against Rs. 4.31 lakh crore in the previous corresponding year. Fund houses earn from the total expense ratio charged on schemes. Equity funds, which charge higher expenses as compared to debt funds, are more profitable for fund houses. It saw net inflows of over Rs. 3.50 lakh crore of which Rs. 1.34 lakh crore was from equity funds, including ELSS, balanced funds and ETFs, which helped AMCs grow their PAT.

Piquant Parade

India Post Payments Bank (IPPB) will start selling mutual funds and insurance products of other companies by early 2018 and is open only to "non- exclusive" tie-ups. IPPB will start full-fledged operations in every district of the country by September 2017. The bank had launched its pilot project with a branch each in Raipur and Ranchi on January 30, 2017. IPPB will curate third party products before selling it so as to ensure that it is simple for customers. In addition, there would not be any training of staff necessary as no individual product of any specific company is to be sold. As per RBI norms, Payments banks have to focus on providing basic financial services, including social security and utility bill payments, remittance functions, and can mobilise deposits of up to Rs 1 lakh. In addition, they can distribute insurance, mutual funds and pension products, and act as business correspondent for other banks for credit products. As many as 100 entities including IDBI Bank, HSBC, Axis Bank, Deutsche Bank, Barclays Bank, Citibank, SBI and LIC have evinced interest in partnering with IPPB for various functions given the unmatched rural reach India Post has. The list of insurance companies which has approached the payments bank include HDFC Life, ICICI Prudential, Max Life Insurance and Bajaj Allianz Life. As part of its expansion drive, IPPB plans to open 650 new branches by September 2017. The Postal Department at present has a network of 1.55 lakh post offices and the new branches will be set up within them.

Private equity firms like Blackstone and General Atlantic have reportedly been eyeing a majority stake in Karvy Computershare. Both the PE firms are in separate talks to buy close to 74% stake in Karvy Computershare for roughly Rs.2,100 crore. While Australian R&T Computershare, which has 50% stake in the company, may exit the business by selling its entire stake, Karvy group is likely to offload its 24% stake in the company. In 2013, the National Stock Exchange bought 45% in CAMS from global buyout fund Advent International. Currently, Karvy Computershare services 25 fund houses.

To be continued…