Monday, March 26, 2018


FUND FULCRUM
March 2018

The mutual fund industry witnessed a fall in average assets in February 2018. The latest AMFI data shows that AAUM of the mutual fund industry was Rs.23.17 lakh crore in February 2018. It decreased by 0.34%, or Rs.23,000 crore, from Rs.23.25 lakh crore in January 2018. AMFI monthly data shows that the month-end AUM was Rs.22.20 lakh crore. While AAUM is the average assets of the entire month that is calculated by factoring in all working days of the period, month-end AUM is the assets of the industry as on the last working day of the month. In February 2018, there was a marginal decline in AUM across all categories except liquid and infrastructure debt funds because of the mark to market losses. The equity markets plummeted after the Budget reintroduced long-term capital gains tax. BSE Sensex lost 1,781 points or 4.95% in February 2018. If we take a one-year view, AAUM was up 25.3% from Rs.18.48 lakh crore in February 2017. In the last 10 years, the AUM has increased four times, from Rs.5.05 lakh crore as on March 2008 to Rs.22.20 lakh crore as on February 2018. The data shows that in a span of less than four years, the AUM has increased more than two times, from Rs.10 lakh crore in May 2014. However, despite the fall in AAUM, inflows into equity mutual funds remained strong. The total net inflow for February 2018 stood at Rs.12,092 crore with the maximum inflow of Rs.14,683 crore witnessed in the pure equity category. “The increase was mainly driven by sustained inflows through SIPs. Compared with January 2018, there was a marginal decline in AUM across all categories except liquid and infrastructure debt funds. Also, the income category witnessed net outflows to the tune of Rs.9,800 crore possibly because of the rise in yields,” according to ICRA. SEBI's latest data shows that mutual fund industry has added 15.7 lakh new folios in February 2018. A rough calculation indicates that the industry has added an average of 52,000 folios per day in February 2018.  This brings the total folio count to nearly 7 crore in February 2018. Within the mutual fund categories, addition of new folios in pure equity, balanced, ELSS, and equity ETF remained robust. The number of new folios remained strong despite the volatility in equity and debt markets following the budget proposal for the reintroduction of LTCG on equity funds.

The asset base of the country's top 10 mutual funds declined by a massive Rs 8,900 crore in February 2018, mainly on account of lower inflows from retail and high networth individuals (HNIs). The AUM of the fund houses slumped to Rs 18,68,404 crore in February 2018, as against Rs 18,77,303 crore in January 2018, as per the data of the Association of Mutual Funds in India (AMFI).  Of the top 10 fund houses, six witnessed a drop in their asset base, while the remaining four -- Kotak Mahindra MF, Axis MF, Reliance MF and ICICI Prudential MF saw rise in their AUMs.  In absolute terms, UTI MF saw the maximum decline in its AUM, which plunged by Rs 4,824 crore from the preceding month to Rs 1.56 lakh crore at the end of February 2018. This was followed by HDFC MF, which saw its asset base slumping by Rs 3,221 crore to Rs 2.99 lakh crore. Next comes, SBI MF, whose AUM dropped by Rs 2,280 crore to Rs 2.16 lakh crore. Birla Sun Life MF, Franklin Templeton MF and DSP Black Rock MF too witnessed a slip in their respective AUMs. On the other hand, the asset base of Kotak Mahindra MF, Axis MF, Reliance MF and ICICI Prudential MF rose in the range of Rs 96 crore to Rs 2,584 crore. Overall, the assets under management of the mutual fund industry, comprising 42 players, declined to Rs 22.2 lakh crore at the end of February 2018 from an all-time high of Rs 22.41 lakh crore at the end of January 2018. Retail investors pulled out over Rs 1.33 lakh crore from the mutual fund industry during the period under review, while HNIs withdrew over Rs 1,100 crore. 

For the first time in FY 2017-18, SIP inflows in mutual funds fell marginally, according to the latest AMFI data. The total SIP accounts stood at 2.05 crore, up from 1.97 crore folios in the preceding month. New SIP registration witnessed a marginal fall in February 2018. More than 10.5 lakh new SIPs were registered while 3.21 lakh SIP folios were discontinued in February 2018. In the preceding month, 12.94 lakh new SIP folios were registered and 3.26 lakh SIP folios were discontinued. The SIP AUM in February 2018 was at Rs.2.05 lakh crore which is 9% of the overall MF AUM. 

Piquant Parade

IDFC is looking to exit the AMC business. IDFC has begun discussions with Indusind Bank and Citic CLSA, among others, to merge or sell its AMC, IDFC Asset Management Company Limited-- that manages about Rs 71,000 crore. A fourth of the AMC’s assets under management (AUM) is equity, while the rest is debt. If the deal goes through, it will improve IDFC's capital position. The deal will fetch IDFC about Rs 4,000 crore, which works out to around 6 percent of the assets under management of IDFC Asset Management. Citic CLSA and private equity firms like Apax Partners have expressed early interest in a deal.  These exploratory talks would gain momentum only after IDFC allows potential bidders to conduct due diligence. In March 2008, IDFC had acquired Standard Chartered’s asset management business in India for a total consideration of USD 205 million (around Rs 826 crore then) in an all-cash deal. The purchase had made IDFC MF the 14th largest AMC among 32 firms in the country then. Since then, IDFC MF has done better for itself and has raised its rank further in the industry even though the number of firms increased and the competition in the industry intensified. According to AMFI, in the December quarter IDFC MF was the 11th largest AMC in the 42-firm strong mutual fund industry. When compared to (Oct-Dec) of 2014, when its assets stood at Rs 48,000 crore, the AUM has grown almost 48 percent. If compared to top 3 players of the industry, in the last 3 years, ICICI Prudential Mutual Fund more than doubled (growth of 114 percent), while HDFC Mutual Fund and Reliance Mutual Fund registered 92 percent and 93 percent growth, respectively.

Paytm Money, the financial services platform of Paytm has received SEBI’s approval to become an RIA. This will allow the company to roll out advisory and wealth management services to consumers across the country. Paytm Money is currently completing integration with the respective compliance and regulatory authorities for KYC under the SEBI regulations. It is also integrating all leading AMCs in India. The company will invest $10 million (approx. Rs.64 crore) in its wealth management business. This will make it among the best funded startups even in the history of Indian financial services distribution business. This intensifies the competition in online financial distribution space. Currently, many online distribution firms sell regular plans to its users.One97 Communications, more popularly known as Paytm is backed by the Chinese e-commerce giant, Alibaba.  It is pertinent to mention here that its promoter Alibaba followed a strategy of deploying the surplus funds of their sellers in liquid funds through their wealth advisory arm Ant Financials (then Alipay), which proved to be a big success. Later, the company expanded their distribution business by offering other mutual fund schemes and financial products.

MF Utility has launched ePayEezz feature that claims to bring down the turnaround time for registration to under 5 days from the current 15 to 30 days. CAN holders can register a one-time bank mandate online without having to submit physical form. This feature uses the eSign facility available for the Aadhaar holders whereby the mandate is electronically signed and transmitted to the destination bank. Currently, 40 banks are enabled for this facility. The current limit for the ePayEezz is Rs.1 lakh as set by NPCI. CAN Holders can register multiple ePayEezz mandates for the same bank account registered with the CAN. The introduction of ePayEezz is likely to draw more interest amongst the CAN Holders as the same removes the hurdle of physical submission of paper based PayEezz registration request and the registration turnaround time is drastically reduced to around 5 days which earlier used to be around 30 days. The distributors and RIAs who have login access to MFU System can initiate ePayEezz registration (DIP – Distributor Initiated ePayEezz) for their customers and CAN holders who have online access can register online by logging into MFU System. The company is planning to extend this service for those who have signed up for the API / White Labelling based integration with MFU.

Regulatory Rigmarole

Markets regulator SEBI is considering reduction in the additional expenses charged by mutual funds by 15 basis points, a move aimed at increasing penetration of such products among investors. As per the proposal, the additional expense of 20 basis points may be reduced to 5 basis points across all mutual fund schemes and this need to be reviewed every two years. A basis point is one-hundredth of a percentage point. In 2012, SEBI had permitted mutual funds to charge 20 basis points of assets under management of the scheme in lieu of exit loads, or the sum mobilised from investors when they offload holdings.  In case of open ended equity and balanced schemes, the additional expenses charged are significantly higher than the actual credit back of exit load to the scheme. In comparison, these additional charges are lower in the case of open-ended debt schemes. Across all open ended equity and balanced schemes, an average exit load of around 5 basis points has been credited back whereas an average additional expense of 18-20 basis points has been charged to such schemes. The regulator is also looking to amend the regulatory framework to enable disclosures related to mutual funds in investor-friendly electronic form. Under this, mutual fund houses need to prominently disclose on a daily basis the total expenses charged to customers for all schemes under a separate head on their websites. Besides, they need to communicate to the investor latest net asset value (NAVs) through SMS following a request from the unit holder. 

Equity mutual funds continued to receive robust fund inflows in February 2018 despite reintroduction of the long-term capital gains tax in the FY18-19 Union Budget and a volatile month, reflecting investors' commitment to long-term investments. Since the Indian equity market has entered a phase of consolidation fearing four rate hikes in the US in 2018, rising crude oil prices, increasing bond yields and uncovered frauds at state-owned banks, investors should focus on the longevity of investments.

No comments: