FUND FULCRUM

April 2019

Assets under management (AUM) of the mutual fund industry stood at Rs 23.79 lakh crore at the end of March 2019, up 11% year-on-year (YoY), according to data released by Association of Mutual Funds in India (AMFI). On a monthly basis, AUM grew 2.73% from Rs 23.16 lakh crore in February 2019. The industry saw net outflows of Rs 22,357 crore in March 2019 as against net outflows of Rs 20,083 crore in February 2019. On a monthly basis, net outflows in the liquid/money market category more than doubled to Rs 51,343 crore from Rs 24,509 crore in February 2019. The rise in net outflows reflects redemptions at fiscal year-end as corporates usually tend to redeem their investments to meet the advance tax payment deadline. After witnessing net outflows of Rs 4,214 crore in February 2019, income category witnessed net inflows of Rs 13,856 crore in March 2019 amid the rate cut scenario, according to the AMFI data. Inflows in equity funds (including equity-linked savings schemes) grew more than 120 percent month-on-month in March 2019 to Rs 11,756 crore. The spike can be attributed to larger flows into tax saving schemes in the last month of the financial year and improved investor sentiment on expectations of getting a stable political mandate in the national elections, in contrast to the possibility of a fractured political mandate. Strong flows from foreign portfolio investors (FPIs) supplemented higher domestic flows, taking the broader equity market index close to record highs in March 2019. Progressive regulations by SEBI like reduction of total expense ratio (TER) and introduction of direct plans have drawn smaller retail investors. Added to that, various initiatives and campaigns by industry body -- AMFI -- like 'Mutual Funds Sahi Hai' seems to have altered the retail investors’ behaviour, who traditionally withdraw funds following a year of negative returns. Net inflows in the other ETF category came in at Rs 10,540 crore in March 2019 as against net inflows of Rs 5,234 crore in February 2019. However, net outflows in the balanced category came in at Rs 3,181 crore as against net outflows of Rs 1,077 crore in February 2019. Quarterly average assets under management in the March quarter stood at Rs 24.47 lakh crore, up from Rs 23.62 lakh crore in the December quarter.

    

Despite a challenging FY19, the 43-player mutual fund industry saw net inflows of Rs 1.10 lakh crore. However, the net inflows more than halved from the Rs 2.71 lakh crore registered in FY18, according to the data on the Association of Mutual Funds in India (AMFI). Fund managers attribute the fall in net inflows to lower inflows in the equity fund and outflows from debt categories. Inflows into equity funds (including ELSS and others) fell by 37% from Rs 1.71 lakh crore in FY17-18 to Rs 1.07 lakh crore in FY18-19. Asset managers claimed slower inflows in equity schemes could be on the back of volatile equity markets in FY19. Amid intermittent bouts of volatility during FY19, Sensex gained 18.77%. They also pointed out that the correction in mid and small cap segment and market concerns over NBFC credit events may have led to a negative impact on flows in the last financial year. The outflows from debt funds (including income and gilt funds) shot up to Rs 1.25 lakh crore in FY19 as against Rs 9,128 crore registered a year ago. Fund officials attributed the rise to the credit event in September 2018, tightness in liquidity, interest rate hikes by RBI in the early part of FY19 which led to a lower interest in debt funds. In September last year, IL&FS had defaulted on repayments. Presence of IL&FS and its subsidiaries in the portfolios of debt funds had led to a sharp fall in their net asset values, prompting investors to pull out their investments from debt funds. Liquid funds, which witnessed outflows in the last six months of FY19 managed to end the year with net inflows. In FY19, this category registered net inflows of Rs 76,000 crore. In comparison, liquid funds had registered net outflows of Rs 2,936 crore in FY18. Liquid fund assets went up by 32% from Rs 4.60 lakh crore to Rs 6.07 lakh crore during the review period. In the last six months of FY19, liquid funds category was the most hit category and had registered significant outflows, particularly after the IL&FS default surfaced in September 2018.

The MF industry has added 1.04 crore folios last fiscal taking the total folio count to 8.18 crore folios as of March 2019, shows SEBI data. Nearly 85% of these folios were in equity funds. Equity folios grew by a healthy 17% from 5.94 crore in March 2018 to 6.93 crore in March 2019. Equity category includes pure equity, ELSS and balanced funds. Compared to FY17-18 when close to 1.6 crore folios were created during the year, there has been some slowdown in folio creation because of volatility in both debt and equity markets. Even then, the year FY 18-19 saw a healthy growth of 15% in total folios largely due to increasing awareness about mutual funds among investors through AMFI’s ‘Mutual Funds Sahi Hai’ campaign. Liquid (51%), other ETF (42%) and fund of funds investing overseas (OFoFs) (33%) saw strong growth last fiscal. While the ETF category benefitted from strong investor interest in PSU divestment offerings by the government through CPSE ETF, liquid funds saw increased participation due to volatility in debt markets. On the other hand, though the growth in overseas FoFs folios is high in percentage terms, the industry saw addition of 31,358 new folios last fiscal. Overall, barring gilt funds and gold ETFs, all categories saw growth last fiscal. The slowdown in gold ETFs can be attributed to introduction of sovereign gold bond fund and relative stagnancy in gold prices. The expectations of tighter monetary policy and QE tightening by developed economies led to lower interest in gilt category.

An analysis of quarterly AUM of 39 fund houses shows that HDFC MF, ICICI Prudential MF and Reliance MF are the top three fund houses in terms of equity AAUM. While HDFC MF boasts a market share of 15% with equity AUM of Rs.1.58 lakh crore, ICICI Prudential MF has 14% share with equity AUM of Rs.1.46 lakh crore and Reliance MF 9% with equity AUM of 91,354 crore, as on March 2019. Equity AAUM includes equity funds, ELSS and balanced funds. Even in FY 2017-18, these three fund houses topped the list in terms of equity AAUM. However, there has been a change in the fourth and fifth positions from the last financial year. SBI MF with 8.8% market share and equity AUM of Rs.90,268 crore has now become the fourth largest AMC in terms of equity AAUM. It replaced Aditya Birla Sun Life MF that has 8.7% market share and equity AUM of Rs.89,062 crore as on March 2019. ABSL MF slipped into the fifth spot primarily due to outflow from its balanced funds. Among the top ten fund houses in terms of equity assets, SBI MF was the major gainer last fiscal in absolute terms. The fund house added Rs.16,123 crore to its equity AUM kitty in the last one year ending in March 2019. Axis MF and Kotak MF followed SBI MF in terms of growth in equity AUM in absolute terms. Overall, the top ten fund houses account for 80% of the total equity AUM. Further, if we look at the top 15 fund houses in terms of equity assets, Tata MF replaced Motilal Oswal MF to make to the top 15.

AMFI’s latest data shows that SIP contribution of the Rs.23 lakh crore mutual fund industry has increased from Rs.67,190 crore to 92,693 crore, a growth of over 38% in just a year. Also, the SIP AUM grew by Rs.68,077 crore in the last financial year from Rs.1.99 lakh crore in March 2018 to Rs. 2.67 lakh crore in March 2019. SIP AUM now accounts for 11% of the total industry AUM. Several factors came together to drive the SIP success story. Demonetisation at the end of CY 2017, lower bank interest rates, financialisation of savings and AMFI’s ‘Mutual Funds Sahi Hai’ campaign have all contributed to generate interest in SIPs. On a more subdued note, the growth in the number of SIP accounts declined in FY 18-19 compared to FY 17-18.  While FY 17-18 had 30% SIP closure (No. of SIPs discontinued/No. of new SIP registered), FY 18-19 saw 54% SIP closure. Increase in SIP closure is a result of market uncertainty. The scale of flows is influenced by market direction. The current trend may continue for a few more months but SIP flows will normalise once markets stabilise. Analysis of SIP data shows that closure is higher among direct investors compared to regular plan investors as there is no one to hand-hold them through volatile markets. Previously many major banks recommended 1-2 year SIPs. This trend is now changing to perpetual SIPs, which will lead to lower closures in the coming years.

Piquant Parade

Reliance Capital has invited Nippon Life Insurance to acquire up to 42.88% stake that Reliance holds in their joint venture (JV), Reliance Nippon Life Asset Management (RNAM). Nippon Life Insurance holds 42.88% stake in RNAM and if the deal goes through, Japan's Nippon Life will hold 85.76% stake in the AMC. The deal may also trigger an open offer as it will result in a change of ownership. As per the Securities and Exchange Board of India's (SEBI's) takeover code regulation, the open offer has to be made to public shareholders of Reliance Nippon Mutual Fund who hold 14.25% stake. Since the deal will involve a change of control, the stake sale may happen at a premium to the current market price. As at the end of December 2018 the asset under management of RNAM stood at Rs 2.27 lakh crore. Reliance Nippon Life AMC reported a net profit of about Rs 110 crore in the quarter ended December 31, 2018. The company earned about Rs 350 crore in revenue from operations for the third quarter.

India’s largest mutual fund distributor NJ India has applied for the mutual fund license with SEBI. The company does not have any fund house accquistion plans. Instead they are considering the business to be an extension of their distribution business. In the first three months of Calendar Year 2019, three new players including NJ India have shown their interest in mutual fund business. The other two who showed their interests in mutual fund business are SREI and Karvy Stock Broking. Apart from these three companies, Geojit Financial Services, Samco Securities and Equity Intelligence India applied in 2018 for SEBI’s nod to get into mutual fund business. Last year, Trust Investment Advisors and Muthoot Finance got the SEBI in-principle approval to start their asset management business.

…to be continued