FUND FULCRUM

October 2018

The average assets under management of the 41-player mutual fund industry rose 14% to Rs 24.29 lakh crore in July-September 2018, according to the Association of Mutual Funds in India (AMFI) data. In comparison, the total AUM of the industry in April-June 2018 stood at Rs 23.4 lakh crore. Mutual fund managers attributed the rise in quarterly AUM to strong participation from retail investors. In addition, continuous flows from systematic investment plans helped the industry to register growth in the AUM. Joint efforts of investor awareness campaigns by AMFI and fund houses have driven growth in the industry. Among top 10 asset management companies, ICICI Prudential Mutual Fund with a marginal rise in assets continued to remain the top fund house in the industry with AUM of Rs 3.10 lakh crore. While average AUM of HDFC Mutual Fund fell 0.16%, it managed to maintain the second position and Aditya Birla Sun Life Mutual Fund continued to remain at the third slot. SBI Mutual Fund with nearly 9% rise in its average AUM took the fourth position relegating Reliance Mutual Fund to fifth spot. The total AUM of top 10 asset management companies rose 3.68% to Rs 19.63 lakh crore of the total 24 lakh crore. Of the 41 fund houses, as many as 33 mutual funds witnessed growth in their asset base in the July-September quarter of 2017-18, while eight saw a decline in their AUMs. The profit before tax as a percentage of revenue of large mutual funds has also stood at a very healthy rate of 40-50%. In the last 12 years, a growth of 6.5% has been seen in the mutual fund industry from Rs 3.53 lakh crore of AUM in March 2007 to Rs 23.05 lakh crore in March 2018. The number of players in the mutual fund industry has grown from 34 in March 2007 to 46 in March 2013. However, it reduced to 42 by March 2016 and to 41 at present.

Despite the volatile equity markets, the industry witnessed positive equity inflows in September 2018. HDFC Mutual Fund continues to hold the top position in terms of equity AUM. An analysis of quarterly AUM disclosed on the AMC website shows that HDFC MF has the highest equity AUM at Rs.1.57 lakh crore as on September 2018.  Despite the fall in key equity indices, the company has witnessed a growth of 2% in its equity AUM i.e. from Rs.1.55 lakh crore in June 2018. ICICI Prudential MF and Reliance MF followed HDFC MF for the second and third position with equity AUM of Rs.1.46 lakh crore and Rs.91800 crore respectively. In absolute terms, SBI Mutual Fund recorded an impressive growth of 8% by adding Rs.6,155 crore in assets in July-September 2018. Axis Mutual Fund and ICICI Prudential Mutual Fund followed SBI Mutual Fund by collecting Rs.5,348 crore and Rs.3,411 crore respectively in July-September 2018. Whereas HDFC MF’s AUM increased by Rs. 2,384 crore. In percentage terms, Invesco Mutual Fund, Tata Mutual Fund and Axis Mutual Fund recorded double digit in their equity assets last quarter. However, three fund houses - Edelweiss Mutual Fund, DSP BlackRock Mutual Fund and DHFL Pramerica Mutual Fund recorded a marginal decline in their quarterly AUM. Overall, the total equity AUM of the top 20 fund houses grew 4% from Rs. 9.27 lakh crore in June 2018 to Rs. 9.64 lakh crore in September 2018.

Fears of a liquidity crunch following the IL&FS crisis hit the mutual fund industry in September 2018. Cash plans or liquid funds were the worst hit. Liquid funds registered massive outflows in liquid funds and left the mutual fund industry short of Rs. 2.3 lakh crore in September 2018. Going by the AMFI data, outflows from liquid funds alone totalled Rs 2.11 lakh crore. Liquid funds invest in cash assets such as treasury bills, certificates of deposit and commercial paper for a shorter horizon.

Equity fund folio addition has boosted domestic mutual fund industry helping it register over 13.20 lakh more investor accounts in September 2018, according to SEBI data. Total investor accounts stand at 7.78 crore in September 2018. Equity funds added 10.90 lakh accounts last month, taking the total equity fund folios to 4.81 crore. Fund managers attributed the addition in equity fund folios to the matured behaviour of retail investors who were seeing the market fall as an opportunity to invest their surplus money. Folios are numbers designated for individual investor accounts, though one investor can have multiple accounts. The addition comes even though the AUM of the 41-member-strong MF industry has seen a sharp drop to Rs 22.06 lakh crore in September 2018 against record Rs 25.20 lakh crore in August 2018. Despite steep fall in equity markets, equity and equity-linked saving schemes (ELSS) saw an infusion of Rs 11,250 crore. Besides, balanced funds witnessed an inflow of Rs 731 crore. About 1.25 lakh folios were added in the ELSS segment. The S&P BSE Sensex lost more than 2,400 points, or 6.2% in September 2018 — the worst fall in the month of September since 2008. The Sensex had fallen by about 10% in September 2008.

The latest AMFI data shows that the mutual fund industry has been receiving an average monthly inflow of Rs.7,650 crore through SIPs. This is the average monthly inflow of three months for the period July to September 2018. In the preceding quarter, i.e., between April and June 2018, the average monthly SIP inflow was Rs.7,182 crore. In September 2018 alone, the monthly inflows in mutual funds through SIP reached an all-time high of Rs.7,727 crore. Overall, the data shows that the industry mopped up close to Rs.44,500 in the last six months through SIPs, which is much higher than the first six months of SIP inflows in FY 2017-18 and the entire year SIP inflows of FY 2016-17. Moreover, mutual fund SIP accounts stood at 2.44 crore in September 2018. AMFI data shows that the mutual fund industry had added about 10 lakh SIP accounts each month on an average during the FY 2018-19, with an average SIP size of about Rs.3,200 per SIP account. In terms of average AUM (AAUM), the mutual fund industry crossed Rs.24 lakh crore in September 2018. AMFI’s latest data shows that AAUM of the mutual fund industry has reached Rs.24.31 lakh crore in September 2018, which is slightly lower than the AAUM of August 2018 at 24.70 lakh crore. However, the monthly AUM of the industry stood at Rs.22.04 lakh crore in September 2018 due to large-scale redemption from corporates and institutional investors from the debt funds to pay advance tax. While AAUM is the average assets of the entire month, which 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. Growth has come largely because of higher inflows in balanced funds, arbitrage funds and equity funds through SIPs.

Piquant Parade

AMFI has elected Nimesh Shah, Managing Director and CEO, ICICI Prudential Mutual Fund as its Chairman. Shah has replaced A Balasubramanian, CEO, Aditya Birla Mutual Fund who was appointed as the AMFI Chairman in 2016. Kailash Kulkarni, CEO, L&T MF will continue to be the Vice Chairman of AMFI for the second consecutive year. There has been only one change in the AMFI committees. Radhika Gupta, CEO, Edelweiss Mutual Fund will now head registration of distributors committee. Last month, AMFI had inducted three new faces - G Pradeep Kumar, Prathit Bhobe and Vishal Kapoor as directors on its board. Currently, there are 15 members in AMFI board of which seven are from the top ten fund houses and four each from mid and small sized AMCs.

Non-banking finance company, Muthoot Finance, has received an in-principle approval from the Securities and Exchange Board of India to commence asset management operations, according to the latest data on ‘Status of Mutual Fund Applications’. The company had approached the market regulator for an AMC licence in March 2017. At present, it has a mutual fund distribution arm:  Muthoot Securities. Muthoot Finance is listed on BSE and NSE as gold financing NBFC. In July 2018, SEBI had given an in-principle approval to Yes Bank and it is expected to start operations this year.  SEBI has also given consent to Fortune Financial Services and Fortune Credit Capital this year to start their MF business. Fortune Financial Services has already filed draft offer documents with SEBI to launch its schemes under the name of ITI Mutual Fund. Data on the SEBI website shows that Trust Investment Advisors, Karvy Stock Broking, Samco Securities, and Equity Intelligence are awaiting approval from SEBI to launch their mutual fund business in India. As per the SEBI norms, a sponsor applying for a mutual fund licence is required to be in the financial services business for five years and must have a positive net worth for five years.  Also, the sponsor should have earned profits in three of the previous five years, including the latest year. SEBI conducts an on-site due diligence of sponsors before granting approval.

After Flipkart and Paytm, Mobikwik has forayed into online distribution business by acquiring online direct plan platform Clearfunds. Bajaj will now be the CEO of MobiKwik's wealth management business. Mobikwik would invest $15 million (approximately Rs.112 crore) over the next one year to expand its wealth management business. The 107 million plus customers will soon be able to start saving in mutual funds seamlessly from their MobiKwik app in just a few clicks. The company would continue to look at strategic investments through acquisitions. Currently, Clearfunds charges Rs.99 a month from investors as wealth management fees.

MF Utility or MFU - an online platform - is in the process of joining hands with more fund houses. Launched in 2015, MF Utility is fast gaining acceptance among distributors and investors. With over 3.50 lakh transactions being executed every month, close to 90% of these transactions are paperless. MF Utility has tied up with 30 fund houses which handle almost 97% of the industry’s AUM. Currently, the 41-player mutual fund industry manages a little over 24 lakh crore AUM. Since MF Utility is a not for profit organisation, fund houses will have to come forward and help MF Utility sustain business. AMFI can consider selling it to the existing players. In fact, BSE had shown its interest in acquiring MF Utility. In 2016, AMFI had constituted a group to discuss the possibility of selling stake in MF Utility to BSE. It would be worthwhile to examine the proposal received from BSE. Seeking a mutually beneficial alliance between MF Utility and strategic parties like BSE Star MF platform with shared governance can enhance the value and business volume for MF Utility. The merger can help bring down cost per transaction for participating AMCs. Currently, the participating AMCs have to cough up Rs.2.50 lakh every month. Due to this flat fee structure, the cost per transaction depends on the volume of transaction and hence varies every month. Higher the volume, lower the transaction cost.

AMFI has postponed its proposed campaign highlighting debt investments, amid scepticism triggered by default in repayment by IL&FS. The new campaign focusing on the fixed income category was a sequel to the ‘Mutual Funds Sahi Hai’ drive, and slated for launch in September 2018. AMFI’s first promo was focused on equity. During the current fiscal, AMFI is planning to spend Rs 150-175 crore to promote mutual fund investments. In 2017-18, it had spent Rs 200 crore for the purpose.

ET Money has announced that the company aims to help 17 million investors who have invested in mutual funds through regular plans to switch to direct plans for free. The company said that it would allow an estimated 1.7 crore existing mutual fund investors to convert their regular mutual fund investments into zero-commission, direct mutual funds and start saving lakhs in commissions. The company claims that this is one of the biggest initiative by any company in the space to simplify investing. By shifting to direct plans, users can save up to 1.5% in commissions every year compared to regular plans. In recent scenario of volatile stock markets, if investors believe in holding back new investments, then converting one’s regular mutual funds to direct mutual funds can be a great option. The process to switch to direct funds is simple. Investors just need to upload their mutual fund statement on the app and within 30 seconds they will be shown the option to shift their regular funds to direct plans. It also shows possible savings in commissions, applicable exit loads and taxes, so that they can take an informed decision. The app also assists them in getting the transaction statement by providing a step by step guide. Once converted to direct mutual funds, the investors will also be able to continue investing in them from the app at no additional cost.

In a major setback for online distributors relying on Aadhaar based eKYC to onboard new clients, UIDAI has asked KYC registration agencies (KRAs) to stop immediately doing Aadhaar based authentication for eKYC. In fact, the UIDAI has asked KRAs to give them in writing that they have stopped using Aadhaar based authentication for eKYC. Ever since the Supreme Court has come out with its verdict on Aadhaar, there has been lack of clarity among fund houses, R&T agents and distributors on using Aadhaar based eKYC for onboarding new clients. In fact, a few distributors and fund houses continued with Aadhaar based eKYC to onboard new clients. With this, new age distributors would be affected the most as they completely rely on Aadhaar based eKYC to onboard a new client.

…to be continued