FUND FULCRUM
November 2017
With rising equity markets, the
average assets under management (AAUM) of the mutual fund industry reached
close to Rs.22 lakh crore in October 2017. AMFI’s latest data shows that AAUM
of the mutual fund industry has reached Rs.21.79 lakh crore in October 2017.
The average AUM of the mutual fund industry has increased from Rs.19.92 lakh
crore in June 2017 indicating a growth of 9% in a quarter. However, the monthly
AUM of the industry stood at Rs.21.41 lakh crore in October 2017. While AAUM is
the average assets of the entire month and is calculated by factoring in all
working days of the month, month end AUM is the assets of the industry as of
the last working day of the month. The growth has come largely because of
higher inflows in balanced funds, arbitrage funds and equity funds through
SIPs. AMFI data shows that the monthly inflows in mutual funds through SIP
reached an all-time high of Rs.5,621 crore. Data shows that the industry mopped
up close to Rs.35,000 crore in the last seven months through SIPs. Moreover,
the mutual fund industry had added about 8.86 lakh SIP accounts each month on
an average during the FY 2017-18, with an average SIP ticket size of about
Rs.3,250. Overall, AMFI data shows that the industry has received net inflows of
Rs.23,574 crore in equity funds including pure equity funds, balanced, ELSS and
equity ETFs in October. The total equity AUM has increased by Rs.66,000 crore
to reach a record high at Rs.9.16 lakh crore in October 2017. The industry’s
AUM had crossed the milestone of Rs.10 lakh crore for the first time in May
2014 and in a short span of a little over three years, the AUM size has doubled
to Rs.20 lakh crore. The total number of folios as on October, 2017 stood at
6.32 crore.
SEBI’s latest data shows that the
Rs. 21.45 lakh crore mutual fund industry has added 11 lakh new retail folios
in October 2017. A rough calculation indicates that the industry has added an
average of 59,000 folios per day in the month of October 2017. As a result, the
total folio count has reached over 6.31 crore in October 2017. For the last
three months, the industry had constantly added over 60,000 folios per day on an
average. However, last month, the industry witnessed a slight decrease in
retail folio count. The decline in the quantum of new folios is largely due to
the festive season as investors were more inclined to buy gold and other
physical assets. Among mutual fund categories, equity funds have added over
10.26 lakh folios last month including pure equity, balanced and ELSS. Thanks
to the market rally, pure equity funds have attracted 7 lakh investors
increasing the folio count from 3.67 crore in September 2017 to 3.74 crore in
October 2017. At the same time, equity funds saw an inflow of Rs.15,218 crore,
shows the latest AMFI data. Also, AUM of equity funds stood at Rs. 6.32 crore
in October. ELSS funds witnessed an addition of around 92,000 mutual fund
folios and received net inflows of close to Rs. 784 crore in October 2017.
Balanced funds continued the positive momentum by adding 1.85 lakh
folios. The category received net inflows of Rs. 5,897 crore in October
2017.
According
to the Association of Mutual Funds in India (AMFI) data, equity funds received
an inflow of Rs 2.86 lakh crore from November 2016 to October 2017. Prior to
that, such funds had registered inflows of Rs 1.5 lakh crore between October
2016 and December 2015. Along with that optimism of investors, demonetisation
actually helped the industry to attract more investments. We have seen Rs 2.86
lakh crore coming into the mutual funds but we have also seen some redemptions.
After taking into account redemptions, we have a net inflow of Rs 1.35 lakh
crore. While overall assets under management (AUM) rose 32% since November
2016, the equity AUM grew by 46% after the note ban. Overall, the asset base of
the mutual fund industry, comprising 42 players, reached an all-time high of Rs
21.41 lakh crore in October 2016, while that of equity AUM was over Rs 6.32
lakh crore. The traction in inflow of equity funds could be attributed to
several factors. One, post demonetisation, there has been a clear increase in
money coming into regulated market products such as mutual funds. Secondly, a
slash in fixed deposit rates has seen retail money coming into equity markets
through the mutual fund route. Money from unwinding of deposits may also have
entered mutual funds. Third, with SIPs as a way of investing picking up among
individual investors, equity funds have seen a steady increase in inflows as
retail money, unlike institutional money, tends to be more sticky and steady.
Systematic investment plans (SIPs), which have been the preferred route for
retail investors to invest in mutual funds as it helps them reduce market
timing risk, saw monthly collections growing to Rs 5,621 crore last month from
Rs 3,434 crore in October 2016. The asset base of B-15 cities currently account
for 17.7% of the overall industry AUM, up from 17% in Oct 2016 prior to
demonetisation. B-15 cities have been witnessing
a lot of activity around investor awareness and demonetisation was a much
needed shot in the arm to help spur investments from smaller centres.
Piquant Parade
After a foray into the life insurance
business and setting up of a NBFC subsidiary, Kerala-based Federal Bank is now
looking at the mutual fund industry for further expansion of its operational
domain. The bank is also in
the process of divesting 26% stake in the fully-owned NBFC arm, Fedfina, to a
strategic investor to raise capital for the subsidiary. Fedfina,
is in the distribution business and also in the underwriting of loans for which
it has generated a loan book of Rs 1,250 crore. The loan book of Fedfina is expected
to double for which capital is needed. The equity divestment is towards that
requirement and the strategic investor would be finalised by the end of the
fiscal. Regarding the banking operations, equal
stress is being given to corporate, MSME and retail loans. The bank's
gross NPA level has been coming down over the last three years and stood at 2.3%
at present. Post-demonetisation, digital transactions of the bank increased
from 48% to 63%. The bank's business size stood at Rs 1.85 lakh crore
comprising both deposits and advance at Rs 1 lakh crore and Rs 85,000 crore,
respectively.
Punjab National Bank has said that the company will sell its
entire stake in Principal PNB Asset Management Company. In fact, the Principal group has exercised call option to
buy the entire stake in the company. Consequent upon the exercise of Call
Option by the Principal Group, Board in its meeting held on 02.11.2017 has
approved to offload its entire stake in Principal PNB Asset Management Company
and Principal Trustee Company Pvt Ltd to the Principal group. Principal Mutual
Fund manages AUM of Rs.5826 crore as on September 2017.
Peerless Mutual Fund has been
renamed as Essel Mutual Fund with effect from November 1, 2017. Earlier in August 2017, Essel Finance had got the Securities
and Exchange Board of India's approval to acquire Peerless Funds Management. Subsequently,
the name of the Asset Management Company has been changed from 'Peerless Funds
Management Co Limited' to 'Essel Finance AMC Limited’ with effect from October
24, 2017. In addition, the name of the trustee company has been changed from
'Peerless Trust Management' to 'Essel MF Trustee' with effect from October 30,
2017. Consequently, scheme names with prefix 'Peerless' has been changed to
'Essel'.
Canara Robeco Mutual Fund has
allowed its mutual fund investors to use MF Utilities India's MF Utility portal
for transactions in addition to the existing platforms. MF Utility is a 'transaction aggregator portal' and a shared
service initiative of various asset management companies in India, wherein it
enables the investors to transact in multiple schemes across fund houses. To
use the portal, Canara Robeco Mutual Fund has signed an agreement
with MF Utility India. Unit holders availing MF Utility can either transact
electronically or physically in the authorised points of service approved by MF
Utility India.
While Reliance Nippon Life AMC became the
first fund house to go public in two decades, other fund houses such as ICICI, HDFC
and UTI have been reportedly launching their IPOs soon. Listing of an asset
management company has many advantages for both investors and companies.
Listing of an AMC provides retail investors access to a new sector. It
makes the AMC business transparent for investors and attracts global investors.
Listing of an AMC increases the accountability of the asset management company.
Another possible reason could be retention of talent. Globally many companies
use ESOP route to retain key employees. Going forward, the focus of the
industry will move towards more profitable growth. Mergers and acquisition will
take place based on profitability of the fund house instead of AUM. Investors
will look at track record of profits. Public companies will have to focus
on profitability to live up to the investor expectations.
Regulatory Rigmarole
The Association of Mutual Funds in
India has sent an addendum to mutual funds for making Aadhaar mandatory
for mutual fund investments with effect from January 1, 2018. On October 23, AMFI in an e-mail communication directed that
mutual funds will not be allowed to open any new folios without obtaining
customers' Aadhaar numbers. However, fund houses can allow investors to invest
in mutual funds without furnishing Aadhaar details at their discretion; they
will have to update such details before December 31, 2017. AMFI has also
directed fund houses to ensure linking of Aadhaar details with existing folios
before December 31, 2017. AMFI has asked fund houses to freeze non-Aadhaar
compliant accounts with effect from January 2018. This means, non-Aadhaar
compliant investors cannot execute fresh mutual fund transactions. This comes
in the wake of the recent amendment in the Prevention of Money Laundering
Act (PMLA) Rules, 2017. Earlier, the Finance Ministry had directed fund houses
to link the Aadhaar number with the mutual fund folios before December 31,
2017. Investors can link their Aadhaar number with mutual fund folios through
R&T agents such as CAMS and Karvy.
AMFI is likely to approach SEBI requesting modification of certain
regulations of the scheme consolidation guidelines. Among other things, AMFI wants the market regulator to
modify norms related to market capitalization, Macaulay duration and inclusion
of gold as an asset class in the multi asset funds. Last month, SEBI had
come out with uniform definitions for fund categories to reduce confusion among
investors and expedite scheme consolidation. SEBI had defined large cap stocks
as the 1st to 100th companies in terms of full market capitalization. While mid
cap stocks, comprise 101st to 250th companies, small cap stocks consist of
beyond 250th companies in terms of full market capitalization. On debt funds,
AMFI will request the market regulator to consider modified duration instead of
Macaulay duration. “Duration signifies risk. Longer the duration higher the
risk. Since modified duration measures the price sensitivity of a bond due to
change in the yield to maturity, it is a better measurement of interest rate
risks. On the other hand, Macaulay duration calculates weighted average of
maturity before the cash flows on bond starts and hence it may understate such
risks. Currently, most fund houses consider modified duration to measure
interest rate risks. Another key aspect of the circular is inclusion of gold in
multi asset funds. SEBI has asked fund houses to have exposure to at least
three asset classes in multi asset allocation funds. Apart from equity and
debt, there are commodities like gold where a fund manager can invest in.
Since, our fund managers do not have conviction on the performance of gold,
they are not willing to take exposure to such an asset class.
No comments:
Post a Comment