FUND FULCRUM

May 2018

The new financial year started on a positive note for the mutual fund industry. Its assets under management reached an all-time high of Rs.23.25 lakh crore, thanks to net inflows of Rs.1.37 lakh crore, according to the latest AMFI data. The AUM rose 9% in April 2018, from Rs.21.36 lakh crore in March 2018. The growth is due to healthy inflows in liquid, income and equity funds. AMFI data shows that equity funds received inflows of Rs.10,700 crore in April 2018. If we include ELSS, balanced funds, and ETFs that track indices, the overall inflows in equity funds rose to Rs.15,000 crore in April 2018. The rise in the inflows of equity funds is mostly due to investments by retail investors through SIPs. Similarly, balanced funds recorded the second highest inflows in equity category in April 2018. These funds received inflows of Rs.3,500 crore. Inflows in ELSS and ETFs stood at Rs.447 crore and Rs.305 crore in April 2018, respectively. The assets of equity funds including ELSS, ETFs and balanced funds have also reached an all-time high at Rs.10.60 lakh crore. This is largely due to increased inflows in equity funds and mark to market gains. While the industry received inflows of Rs.16,000 crore in April 2018, BSE Sensex and Nifty 50 reached close to their previous highs last month. AMFI has started disclosing inflows and assets of arbitrage funds separately from this month. The industry has collected Rs.1,238 crore through arbitrage funds. Largely corporates/HNIs invest in arbitrage funds for tax purposes. This separate disclosure will help the mutual fund industry get a better picture on net inflows. Among debt funds, income and liquid funds received inflows of Rs.5,200 crore and Rs.1.16 lakh crore respectively, in April 2018 largely because of investments from corporates and institutions. Corporate and institutions generally redeem their investments at the end of a quarter from debt funds to pay advance tax.

The new financial year continued to see increase in folios. The mutual fund folios count went up by 8.39 lakh in April 2017, according to the latest SEBI data. At the same time, the AUM of the mutual funds industry rose to an all-time high of Rs.23.25 lakh crore. The industry has witnessed consistent increase in the number of folios especially equity funds due to upbeat investor sentiment due to attractive returns. As on April 2018, the total industry folio was at 7.21 crore, with more than 4.4 crore coming from equity. In addition, equity funds (excluding arbitrage) received inflows of Rs.10,700 crore in April 2018. Balanced funds continued the positive momentum by adding 1.07 lakh folios in April 2018 despite a fall in the net inflows to Rs.3500 crore in April 2018 from Rs.6,754 crore in March 2018. Another equity category, tax saving funds also witnessed increase in folios. The category added close to 26,530 lakh folios during the month to reach a total folio count of 1.04 lakh. Equity ETFs, a part of passive investment recorded a marginal decline in folios. The category lost 942 folios in April 2018. Equity ETFs however witnessed an inflow of Rs.2,297 crore last month. Debt funds barring income funds also saw good traction in growth in folios. The total count of income folios fell by nearly 40,000 to 95.4 lakh folios. Another category of fund, the fund of funds saw fall in folios. Folios in overseas fund of funds category dropped by 146 to 93,713.

AMFI data shows that the top 20 fund houses manage direct equity AUM of Rs.1.45 lakh crore as on April 2018. HDFC Mutual Fund has the highest share of direct equity AUM. The fund house manages Rs.23,900 crore of direct equity AUM as on April 2018, according to AMFI data. The direct equity AUM of the fund house has increased by over 61%, from Rs.14,900 crore in April 2017. A major portion of this direct equity assets has come from T30 cities. While retail direct equity AUM of HDFC Mutual Fund was Rs.6,200, direct equity AUM of HNIs and sponsors were Rs.13,200 crore and Rs.1,000 crore, respectively. ICICI Prudential Mutual Fund, the top fund house based on AUM, followed HDFC Mutual Fund in terms of direct equity AUM. The fund house managed direct equity AUM of Rs.21,700 crore in April 2018 compared to Rs.13,200 crore in April 2017, a growth of 64%. The direct retail and HNI equity AUM of the fund house was close to Rs.4,400 crore and Rs.9,700 crore, respectively. Aditya Birla Sun Life Mutual Fund was at the third spot. The direct equity AUM of the fund house has seen a rise of 74% or by Rs.6,780 crore to Rs.15,960 crore in April 2018. In percentage terms, L&T Mutual Fund witnessed the highest increase in direct equity AUM. The direct equity AUM of the fund house increased by 240% to Rs. 2,946.24 crore. Retail and HNI investors contributed Rs. 3,440 crore or 82% to the AUM. Among the top 20 funds, DHFL Pramerica MF was the only fund house to witness a decline in direct equity AUM. The direct equity AUM of the fund house has reduced from Rs.540 crore in April 2017 to Rs.517 crore in April 2018. This is due to reduced contribution in direct equity AUM from the sponsor of the fund house. The contribution by corporate sponsor in direct equity funds came down to Rs.5 crore in April 2018 from Rs.101 crore in April 2017. Overall, the top 20 fund houses have witnessed growth of 63% i.e. from Rs. 89,225.24 crore to Rs.1.45 lakh crore.

The AUM of individual investors in equity-oriented schemes was Rs.7.93 lakh crore in March 2018, up from Rs.5.35 lakh crore in March 2017. The proportion of individual AUM in equity-oriented schemes to the overall industry AUM has increased from 30% to 37% in FY 2017-18, according to AMFI data. The individual AUM of the equity-oriented schemes increased from Rs.5.35 lakh crore in March 2017 to Rs.7.93 lakh crore in March 2018. The healthy inflows in equity funds through SIPs and the lacklustre performance of other asset classes have increased the demand for equity funds among individual investors. AMFI data also shows that individual investors account for 85% of equity-oriented schemes. The mutual fund industry saw net inflows of Rs.2.61 lakh crore in equity funds including pure equity funds, balanced and ELSS in FY 2017-18. Also, the industry mopped up close to Rs.67,190 crore in FY 2017-18 through SIPs as against Rs.43,921 crore in FY 2016-17. The increase in equity folios also display growing investor interest in equity funds. The total folio count of equity funds including pure equity funds, ELSS and balanced funds went up by 1.5 crore, from 4.43 crore in March 2017 to 5.94 crore in March 2018. Overall, the total value of assets held by individual investors in mutual funds increased from Rs.8.53 lakh crore in March 2017 to Rs.11.66 lakh crore in March 2018, an increase of 37%. While both retail and HNIs primarily invest in equity schemes, institutional investors prefer to invest in liquid and debt funds. Institutional investors dominate liquid funds and debt funds by holding 81% and 68% of assets, respectively.

Investor awareness campaigns and strong participation from retail investors have taken the asset base of smaller towns up 38% from a year ago to Rs 4.27 lakh crore in FY18, according to data from Association of Mutual Funds in India. Currently, B15 towns account for nearly 19% of the total assets of the industry. Overall, the industry's AUM, comprising 42 players surged 26% to Rs 23.05 lakh crore in March 2018. Of the total AUM, 62% of the assets from B15 locations was invested in equity schemes, while 36% for top-15 cities or T15 was in to equities. About 10% of retail investors chose to invest directly, while 18.4% of HNI assets were invested directly. Besides, 40.7% of the assets of the mutual fund industry came directly. A large proportion of direct investments was in non-equity oriented schemes where institutional investors dominate.

Piquant Parade

The DSP Group has announced that they will buy out BlackRock’s 40% stake in DSP BlackRock Investment Managers. With this, DSP BlackRock MF will become DSP MF. However, the fund house has to wait for regulatory approvals. While the DSP Group has a track record of over 152 years and currently owns a 60% stake in the joint venture, BlackRock Inc., which currently owns a 40% stake in the JV, is the largest asset management company in the world. Prior to this, the DSP Group had a joint venture with Merrill Lynch Investment Managers in 1996 for its asset management business in India, DSP Merrill Lynch Asset Management (India). This business went on to become DSP BlackRock Investment Managers in 2008 (after BlackRock Inc. took over Merrill Lynch’s global asset management business in 2006).

Escorts Asset Management Ltd has been renamed as Quant Money Managers Ltd. with effect from February 28, 2018. Subsequently, the name of the trustee company has been changed to Quant Capital Trustee Ltd. from Escorts Investment Trust Ltd, effective April 13, 2018. Quant Money Managers Ltd is the investment manager to Escort Mutual Fund.

SEBI’s data on ‘Status of Mutual Fund Applications’ shows that Muthoot Finance, Frontline Capital Services and Karvy Stock Broking are awaiting approval from SEBI to launch their mutual fund business in India. While Muthoot Finance and Frontline Capital Services approached SEBI in March 2017 and July 2017 respectively, Karvy Stock Broking has been waiting to get in-principle approval from SEBI since seven years. It had applied for AMC licence in November 2011. Interestingly, all three companies have a mutual fund distribution arm. AMFI data shows that the wealth management arm of Frontline Capital Services and Karvy Stock Broking have assets under advisory (AUA) of Rs.616 crore and Rs.6,634 crore, respectively as on March 2017. The AUA details of Muthoot Finance are not available in the AMFI’s list of top 500 distributors. Muthoot Finance is a gold financing NBFC.

Yes Bank will start its mutual fund business by August 2018. In fact, the AMC is in the final stage of getting SEBI approval to launch its first mutual fund scheme. The company has identified senior leadership and technology architecture to commence operations within 3 months. CAMS will be the registrar and transfer agent for the fund house. Similar to other bank sponsored AMCs, Yes Bank will leverage its banking network to distribute its funds. The AMC will channelize the savings of retail, corporate and institutional investors in equity and debt capital markets by leveraging Yes Bank’s expertise. This will complement Yes Bank’s retail liabilities strategy and also allow the AMC to leverage the bank’s distribution network for customer acquisition and provide customers a seamless experience for their investments and savings solutions

Union Bank of India said Japan's Dai-ichi Life Holdings acquired 39.62% stake in Union Asset Management through investment in compulsorily convertible preference shares. Accordingly, Union Mutual Fund will now be co-sponsored by Union Bank of India and Dai-ichi Life. Dai-ichi has replaced Belgium-based KBC Participations Renta SA, which exited the venture by selling its 49% stake in erstwhile Union KBC Asset Management and Union KBC Trustee to Union Bank of India on Sep 20, 2017. Japan's Nippon owns a stake in Reliance Asset Management which is listed on the stock exchanges. Global players like Prudential and Franklin Templeton dominate the industry.

Regulatory Rigmarole

To encourage retail investors, especially in B30 cities, a few fund houses have reduced their minimum application size from Rs.5,000 to Rs.1,000 to make mutual funds more attractive. While Essel Finance Mutual Fund, the erstwhile Peerless Mutual Fund has been following this practice for quite some time, fund houses such as Aditya Birla Sun Life and DSP BlackRock have reduced their minimum application size from Rs.5,000 to Rs.1,000 to make it more affordable for retail investors. In fact, Aditya Birla Sun Life Mutual Fund reduced the minimum application amount to as little as Rs.500 in their flagship schemes such as Aditya Birla Sun Life Frontline Equity Fund and Aditya Birla Sun Life Equity Fund. SBI Mutual Fund is also planning to reduce their minimum application amount to Rs.1,000.

India is poised to be the fourth wealthiest country in the world with total wealth of $24,691 billion by 2027, says a report released by New World Wealth. The report states that India will be the fastest growing among top 10 countries, growing at a massive rate of 200% in 10 years. Currently, India is the sixth wealthiest country with a total wealth of $8,230 billion. Strong growth in financial services, IT, business process outsourcing, real estate, healthcare and media sectors will pave the way for India’s growth. A large number of entrepreneurs, good educational system and the widespread use of English will also boost India’s wealth. In the last 10 years, India was the second fastest growing economy among the top 10 countries, with a growth rate of 160% between 2007 and 2017. India is also the best performing wealth market in the past one year at 25% on the back of strong stock market gains. Total wealth refers to the private wealth held by all the individuals living in each country/city. It includes all their assets (property, cash, equities, business interests) less any liabilities. The report has excluded government funds. The other countries that will witness rapid increase in wealth are China (180%) and Australia (70%). It also mentions some of the major risks that these top 10 countries may face in the future. It includes rising pension obligations, religious tensions and public healthcare costs. New World Wealth is a global market research group, based in Johannesburg, South Africa. They specialise in ratings, surveys, country reports and wealth statistics.

It is vacation time again! Time for a short repose…The next blog that will appear on the last Monday of August, 2018, will update you on all the happenings in the Indian mutual fund industry in the intervening period.