FUND FULCRUM
August 2018
With
equity markets reaching an all-time high in July 2018, the average assets under
management (AAUM) of the mutual fund industry reached close to Rs.24 lakh crore
in July 2018. AMFI’s latest data shows that AAUM of the Mutual Fund industry
has reached Rs.23.96 lakh crore in June 2018. However, the monthly AUM of
industry stood at Rs.23.06 lakh crore in July 2018. 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 equity funds through SIPs. AMFI data shows that the monthly inflows in
mutual funds through SIP reached an all-time high of Rs.7554 crore. Data shows
that the industry mopped up close to Rs.29,100 crore in the last four months
through SIPs. Moreover, the Mutual Fund industry had added close to 10 lakh SIP
accounts each month on an average during the FY 2018-19, with an average SIP
ticket size of about Rs.3,250. Currently, the industry has 2.33 crore active
SIP accounts.
HDFC AMC holds
the top spot in terms of monthly average equity AUM with equity assets of Rs.
1.53 lakh crore as on July 2018. Of the total assets, the fund house has Rs.
91,839 crore in pure equity and ELSS funds and Rs.61378 crore in balanced
funds, shows the latest AMFI data. Equity AUM includes pure equity, balanced
and ELSS funds. In the second place comes ICICI Prudential MF with total equity
AUM of Rs.1.43 lakh crore as on July 2018. In the third place is Aditya Birla
Sun Life MF with equity assets of Rs. 89,727 crore. Following them are Reliance
MF and SBI MF with equity assets of Rs. 88,583 crore and Rs. 82,474 crore
respectively. Of the Rs. 9.78 lakh crore
equity AUM, Rs. 5.57 lakh crore comes from the top five AMCs. This means 57% of
the industry’s equity AUM comes from the top five AMCs. In terms of absolute
growth, HDFC MF has added Rs.33505 crore of equity assets, which is the highest
in the industry. Closely following on its heels was ICICI Prudential MF and SBI
MF with assets of Rs.31795 crore and Rs.24419 crore, respectively. If we
calculate the growth in percentage terms over last year, among the top 10 AMCs
L&T MF and Axis MF have reported the highest growth in equity assets of 82%
and 69% respectively. If we consider all fund houses then Essel MF (153%),
Mahindra MF (142%) and BOI AXA MF (125%) have grown phenomenally largely due to
low base effect. Overall, majority of the fund houses reported growth in equity
AUM. However, a few small fund houses Taurus MF, Sahara MF and Indiabulls MF
saw their equity AUM declining last quarter.
An
analysis of AMFI data on folio count shows that top 10 AMCs (in AUM terms)
account for 84% of the total industry folios. The total folio count of these
fund houses grew 23%, from 4.85 crore in FY 2016-17 to 5.98 crore in FY2017-18,
an increase of over 1.13 crore folios in a year. In 2016-17, the top 10 AMCs
constituted 85% of the total industry folios. The total folio count of the MF
industry stood at 7.14 crore, as on March 2018. UTI MF retained the top spot
with 1.07 crore folios with 15% market share. However, compared to last year
its total number of folios decreased marginally by 1%. Reliance MF and
HDFC MF followed UTI MF with 81.72 lakh folios (11% market share) and 81.23
lakh folios (11% market share) respectively. In absolute terms, Aditya Birla
Sun Life MF leads the pack with 20.92 lakh new folios that is a 53% increase in
folio count. Amongst other mutual funds, L&T MF and Kotak Mahindra MF have
substantially increased their investor base with L&T MF, more than doubling
its folio count by recording a 131% increase in folios compared to last year.
Piquant Parade
DSP
BlackRock Mutual Fund has become DSP Mutual Fund with effect from August 16,
2018. In May, DSP Group had
bought BlackRock’s 40% stake in their joint venture DSP BlackRock Investment
Managers. While the DSP Group has a track record of over 152 years, BlackRock
Inc. is the largest asset management company in the world. Currently, DSP
Mutual Fund manages assets of over Rs. 89,400 crore as on June 2018.
Bank of Baroda has started looking
out for buyers for selling part of its stake in the AMC venture, Baroda Pioneer
Asset Management Company. BOB
Capital Markets has been hired as the investment banker to manage the stake
sale and the bank has already started the bidding process for selling stake in
the AMC. In December 2017, Bank of Baroda purchased 51 percent stake held by
foreign partner Pioneer Investments in their joint venture asset management
company, raising its shareholding to 100 percent, subject to regulatory
approvals. Both the partners are still awaiting the regulator’s consent. Pioneer
Global Asset Management S.p.A. had acquired 51 percent of Bank of Baroda Asset
Management in 2008 and will now exit the venture.
YES
Bank has received the final regulatory approval (certificate of registration)
from the SEBI to commence its mutual fund business. This approval is subsequent to the RBI
approval granted to YES Bank to sponsor a mutual fund followed by SEBI’s
in-principle approval received subsequently. The AMC has identified senior
leadership and technology architecture to commence operations soon. CAMS is the
registrar and transfer agent for the fund house. The company will launch its
funds over the next 6-12 months. The AMC intends to build a ‘Digital First’
distribution network supported by robust processes and best-in-class human
capital to capture the attractive and growing opportunity in the mutual funds
space.
Karvy
Computershare has introduced a new feature called distributor initiated
transaction on their transaction portal KorpConnect for the mutual fund
distributors. With this
facility, distributors can initiate transaction on behalf of their
non-individual clients such as SMEs and corporates. The R&T agent claims
that this feature will help Mutual Fund distributors to serve better their
corporate and other non-individual clients, who typically like to log in and
approve the transaction. KorpConnect is a transaction portal of Karvy
Computershare for non-individuals with features such as single sign-in to
invest across Karvy serviced fund houses, multi-level access, authorization and
approval workflow and portfolio management. This would help distributors reduce
paperwork, save time and improve transacting experience of distributors and
investors.
Global private equity KKR-backed
Avendus Capital is said to be in the final stage of discussions to acquire
IDFC Asset Management Company. The
deal value is not known as yet, but generally, fund houses are valued at
6-7% of the total asset under management (AUM). IDFC Mutual Fund, the 12th
largest in India by size, managed Rs 69,574 crore assets as of June 30,
2018. IDFC Asset Management Company was established in 2008 after IDFC bought
Standard Chartered Asset Management Company for Rs 820 crore.
Regulatory Rigmarole
SEBI has asked AMFI
to ensure adherence to the best practices circular in letter and spirit. In fact, the market regulator has asked AMFI to chalk out
a roadmap to ensure that fund houses adhere to the best practices circular. AMFI
will take stringent action against those who violate such norms. SEBI has
learnt that a few AMCs are not adhering to AMFI best practices guidelines. In
fact, a few fund houses, which are complying with best practices guidelines on
upfront commission in spirit, said that even they would back out if other
members flout the norms.
In a major relief
to mutual fund distributors earning less than Rs.20 lakh, the government has
deferred implementation of reverse charge mechanism (RCM) until September 2018.
This deferment will benefit distributors
earning less than Rs.20 lakh who do not have GST registration. For distributors
with GST registration, AMCs continue to follow forward charge mechanism, i.e.,
AMCs will pay the gross commission to them. These distributors can avail of the
benefits of input credit.
In frequently asked questions (FAQs) on the applicability of
GST on financial services, the government has clarified that they will levy GST
on exit loads in mutual funds. Though
there is no clarity on rate at which they levy GST on exit loads, the
government might levy 18% on such loads.
SEBI lowered the
additional expense charged in lieu of exit loads by mutual fund schemes with
effect from 29th May
2018. Only schemes charging an exit load (open-ended schemes without lock-in)
can levy the additional 5 basis points charge. In 2012, the regulator had permitted mutual funds to charge
up to 20 basis points of scheme AUM as a compensation for exit load. However, the
funds were overcharging investors by levying expenses in excess of the expected
amount brought in by exit load. As per a PTI report, across all equity and
balanced schemes an average exit load of around 5 basis points has been
credited to the scheme whereas the additional expense charged to these schemes
was between 18-20 basis points. In comparison the additional expense charged
was lower than actual exit load credit back in case of open ended debt schemes.
The drastic reduction in TER will reduce cost of investing in MFs. However,
distributor commissions could be hit by this move.
In addition to
slashing TER, the regulator also gave a green signal to sharing all investor
related disclosures in electronic format in accordance with its ‘Go Green’
initiative. Thus schemes will no longer
need to publish daily net asset value (NAV), sale or repurchase prices in
newspaper. Instead investors can view the data on mutual fund site or AMFI
portal. Furthermore, mutual funds can now upload statement of scheme portfolios
and scheme annual reports or abridged summary on AMFI website or their website
instead of mailing them to investors whose email id is not registered with the
fund house.
SEBI has asked
fund houses to disclose total expense ratio (TER) of each scheme under both regular
and direct plans on a daily basis. With
this, fund houses will have to introduce a separate tab called ‘Total Expense
Ratio of Mutual Fund Schemes’ on their website in a downloadable spreadsheet,
directed SEBI. This has come after SEBI observed frequent changes in TER in MF
schemes. In addition, SEBI found that a few AMCs do not intimate investors
about such changes. “AMCs shall prominently disclose
on a daily basis, the TER (scheme-wise, date-wise)
of all schemes under a separate head – Total Expense Ratio of
Mutual Fund Schemes on their website and
on the website of AMFI in downloadable spreadsheet format,”
said SEBI in a circular. Fund houses will now have to intimate investors by
sharing a notice through email or SMS at least three working days prior to
making any revision in TER of the scheme. In addition, fund houses are required
to put such a notice of change in base TER on their website prominently. So
far, fund houses have been disclosing change in TER on their website within two
working days of making such changes. Fund houses will have to inform the board
of directors of the AMC about the revision in TER along with the rationale for
their decision. The circular has come into effect immediately. Another key
development is the change in the format of TER disclosure on a scheme information
document (SID).
The latest AMFI
data shows that most AMCs were able to resolve investor complaints within 30
days. Of the 32,206 complaints received during the year, only 570 complaints
were unresolved after 30 days. An
analysis of AMFI data reveals that investors have generally raised complaints
regarding data updation, correction in investor details, or discrepancy in
statement of accounts. In line with previous trends, most investor complaints
were resolved within 30 days. These complaints were largely regarding investor
related data though some were regarding non-receipt of dividend. Among
AMCs, SBI MF received the highest number of complaints (7,576), followed by
HDFC MF with 5,749 complaints and ICICI Prudential MF with 5,134 complaints.
Shriram MF, Mahindra MF and IIFL MF received the lowest number of investor
complaints largely due to a smaller number of folios. Among the top 10 fund
houses, Axis, DSP, Reliance and UTI also had the lowest numbers in terms of
percentage of complaints against folios, which is indicative of the AMC’s
customer service efficiency. Compared to last year there has been an 11%
increase in the overall complaints. However, not all AMCs saw an increase in
complaints.
CAMS introduced
a mailback service for distributors through which they can get information on
new schemes post scheme consolidation. Mailback services help distributors get
their business reports in an email. From gross commission statements across
CAMS serviced fund houses to assets under advisory at the fund house level,
mailback services take care of all business details. In addition, you can get
all your queries on scheme mergers answered in one place. You can view scheme
name changes, scheme merger changes along with the respective 'Change type'
& 'Effective Date' details across the 15 funds houses serviced by CAMS. You
can login to www.camsonline.com and simply click on ‘what’s new’ on
the right hand side of the webpage to download the file on scheme
consolidation. Earlier, SEBI came out with uniform definitions for fund
categories to reduce the number of schemes in mutual funds. Simply put, the
market regulator has defined various categories of mutual fund schemes to reduce
confusion among investors and expedite scheme consolidation. The new facility
by CAMS will help distributors to get complete picture of new schemes after merger.
SEBI has found
that fund houses failed to comply with the investment norms under SEBI mutual
fund regulations. Earlier, SEBI had
carried out an inspection of fund houses to understand the AMC practices
between April 01, 2014 and March 31, 2016. After examination, SEBI has sent a
letter to AMFI citing 25 irregularities at fund houses. Among these
irregularities, SEBI has found instances of non-compliance with the investment
norms. Here are some observations of the market regulator.
- · Fund houses invested over 15% of net assets in short term deposits of scheduled commercial banks without taking prior approval of their trustees
- · AMCs failed to comply with requirement of not having exposure of more than 20% of net assets in such deposits at any point of time
- · Fund houses parked over 10% of net assets in short term deposit of one scheduled commercial bank including subsidiary
- · There were instances where AMCs invested in the short term deposits of a bank who have invested in that scheme. AMCs failed to put in place checks and balances to ensure that such banks do not invest in schemes having exposure to their short term deposits
- · AMCs rolled over these deposits on a continuous basis
- · AMCs took blanket approval from their trustees to increase such an investment limit from 15% to 20% in short term deposit
- · Instead of using these short term deposits, fund houses borrowed to meet their cash requirements
- · Establishing unfair valuations of unlisted securities
- · AMCs not following scheme objectives disclosed in SID
- · Close end schemes investing in papers having maturities beyond the maturity of the scheme
- · Not disclosing rationale for inter scheme transactions
- · AMCs having exposure to debt instruments of single issuer higher than the prescribed limits. These AMCs had either taken blanket approval from their trustees or used their power for increasing the investment limits
- · Fund houses not adhered to sectoral limits in debt funds, which led to concentration risk
- · Instances where a scheme used Collateralized Borrowing and Lending Obligation (CBLO) margin of another scheme
- SEBI has asked fund houses to take corrective measures to ensure compliance with the SEBI Mutual Fund regulations.
Over the past
few years, the Indian Mutual Fund industry has grown by leaps and bounds. As
per AMFI, the AUM has grown from Rs 7.01 lakh crores as on 31st March, 2013 to Rs 21.36 lakh crores as
on 31st March 2018, a
more than three-fold increase in five years. And in a 10 year span, the
industry’s AUM increased from Rs 5.05 lakh crores as on 31st March 2008 to Rs
21.36 lakh crores as on 31st March 2018. By no means the growth is phenomenal
for an emerging capital market and would compare favourably with the peer markets.
As the industry expanded so have the number of investors. There is increased
participation not only from the institutional investors but more importantly by
the retail investors. AMFI places the total number of accounts (or folios as
per mutual fund parlance) as on March 31, 2018 having crossed the milestone
of seven crores, at 7.13 crores. From time to time, the market regulator
has introduced several initiatives to protect the interests of the investors in
the mutual funds. These announcements are a step further in the same direction.
At the same time the new/revised norms are not anti-industry as they are meant
to bring more transparency in disclosures and reduce complexity in operations
due to duplicity of schemes having similar investment objectives. Whether the
new changes will really benefit the concerned, only time will tell and remains
to be seen.
No comments:
Post a Comment