FUND FULCRUM

December 2019

   

The mutual fund industry saw its total asset under management (AUM) hitting Rs 27 lakh crore in November 2019, from Rs 23.59 lakh crore a year ago, according to Association of Mutual Funds in India (AMFI) data. That represents a 15 percent growth in assets year-on-year (YoY). On a month on month basis, it rose by 3 percent. This is indeed remarkable, but the asset growth in November 2019 has been driven mainly by inflows into debt funds. Equity funds, a keenly tracked data point, recorded a significant drop in inflows. Equity flows may have tapered off, but the underlying trend is very positive, signaling that cyclicality in equity inflows, inherent to the MF industry, has largely reduced. Though the fortune of the industry will always be linked to vagaries of capital markets, the structural factors are driving growth. Net inflows into equity MFs, including closed-ended schemes, read a mere Rs 933 crore compared to Rs 6,015 crore in the previous month. The monthly net equity inflows have come off significantly from the peak of Rs 20,308 crore in November 2017. However, the underlying trend continues to be very encouraging. Gross inflows into equity funds in November 2019 remained almost stable compared to October 2019. It was increase in redemptions that led to weak net inflows. The Nifty touching an all-time high in November 2019 could have triggered some profit booking and withdrawals from equity funds. The increased redemptions can also be attributed to fading equity outlook amid domestic macroeconomic concerns and muted global cues. With fresh investments still flowing into equity funds, there should be no room for panic.

Currently, mutual funds have about 2.94 crore SIP folios through which investors regularly invest in the schemes. AMFI data also shows that the MF industry added, on an average, 9.55 lakh SIP accounts each month during the current financial year 2020, with an average SIP size of about Rs 2,800 per SIP account. This investment spree through SIPs despite intermittent bouts of volatility in the market suggests not only the confidence of investors in mutual funds but is also reflective of their matured behavior. In today's fast-paced era, ease and convenience of investing matters the most and that is why SIPs have been able to capture the mindshare of new age investors. Over the years, Indian retail investors have clearly made a shift in their investing attitudes and behaviour. As per RBI data, the share of currency and deposits holding in Indian households reduced from 55 percent in FY16 to 51 percent in FY18. And in fact, the share of equity in the pie of Indian household savings increased from 3 percent in FY16 to 8 percent in FY18. Fund managers attributed the all-time high AUM numbers to savvy investors who are sticking to their long term SIPs. The gradual but steady shift of household savings away from physical to financial assets is clearly visible. Overall, the monthly flows in November highlight one thing. Not just the asset management industry, but retail investors who historically invested at peak of market and withdrew funds following a year of negative returns have attained maturity.

Among the top 10 AMCs, HDFC, ICICI Prudential and Nippon India were the top three fund houses in terms of profits in FY 2018-19. HDFC AMC’s profit after tax for FY 2018-19 stood at Rs 930.60 crore. Next in the list was ICICI Prudential AMC with profit of Rs 613.79 crore followed by Nippon India AMC with Rs 487.07 crore. Further, a comparison with last year’s profit showed that Kotak AMC clocked the highest profit growth in percentage terms. In FY 2018-19, the company’s PAT stood at Rs 229 crore which was over 180% higher than Rs 81 crore in FY 2017-18. Of the top 10 AMCs, nine have clocked higher profits in FY 2018-19 as against FY 2017-18. Only IDFC AMC witnessed a decline in their profits. The AMC earned Rs 46 crore of profit, 55% less than Rs 104 crore in FY 2017-18. An analysis of earnings growth of these AMCs shows that the recent regulatory changes that banned upfront commission and asked AMCs to pay commission from the scheme instead of AMC book have helped fund houses reduce their expenses incurred on distribution commission. A key contributor for AMCs to increase profitability is growth in equity assets. In addition, AMCs derive profit from portfolio management, alternative investment funds and offshore advisory services among other things.

Piquant Parade

In June 2019, Toronto-headquartered Manulife picked up a 49 percent stake in Mahindra Asset Management for Rs 250 crore. Mahindra AMC entered the mutual fund industry in 2016. As of the September quarter, Mahindra Mutual Fund managed assets of Rs 5,221, up 5.02 percent from a quarter ago. Mahindra AMC currently has two lakh investors folios, from 400 cities (largely B30 - next 30 locations beyond the top 30 cities), and about 11,000 distributors. At present, Mahindra AMC offers five debt schemes, four equity funds, two hybrid funds, and an equity-linked savings scheme. Manulife primarily operates as John Hancock in the United States and Manulife in other nations, including their headquarters in Canada. Its offices are situated in countries across Europe and Asia. They provide financial advice, insurance, as well as wealth and asset management solutions for individuals, groups and institutions. The company has assets under management of around $394 billion. Several foreign players like Nippon Life, Prudential, Schroders, Sun Life and Amundi have entered the Indian asset management industry through joint ventures in the past. Manulife intends to bring in simple products to India through Mahindra AMC JV as they are keen to penetrate further in the hinterland. The mutual fund penetration to GDP in India is merely 5 percent, while that of Malaysia and Thailand stands at around 30 percent of GDP.

At present SBI, LIC, BoB, each hold nearly 18.5 percent stake in UTI AMC besides having their own independent mutual fund houses. The market regulator directed three public sector financial institutions -- LIC, SBI, and Bank of Baroda -- to dilute their stakes to below 10 percent by December 2020. In the case of non-compliance with directions, the shareholding and voting rights of these entities in UTI AMC and UTI Trustee in excess of 9.99 percent and corporate benefits will be frozen till the time they comply with the orders. The stakeholding of SBI, BoB, and LIC in UTI AMC is in contravention of an amendment to SEBI MF Regulations on March 13, 2018, requiring an asset management company (AMC) to be a sponsor and stakeholder holding 10 percent or more, of only one mutual fund, thereby reducing cross-holding in any other AMC at less than 10 percent. SBI, LIC and BoB defended their status saying divestment needed approval through Department of Investment and Public Asset Management (DIPAM), a government of India body.

UTI AMC IPO will hit the market soon. The fund house has prepared its draft red herring and will soon file it with SEBI. The fund house aims to raise at least Rs.3000 crore through the IPO. Currently, UTI AMC has five shareholders – T Rowe Price, Punjab National Bank, SBI, LIC and BoB. With this, UTI AMC is set to become fourth AMC to be listed. HDFC AMC and Nippon AMC got listed recently while Shriram AMC, the first listed AMC in India, is no longer listed. The Lead managers are Kotak Mahindra Capital Company, Axis Capital, Citigroup Global Markets India, DSP Merrill Lynch, ICICI Securities, JM Financial and SBI Capital Markets.

Aditya Birla Sun Life Mutual Fund has launched 24/7 WhatsApp service through which investors can register new SIPs, check NAVs, generate capital gains statement and so on. Investors can also map their advisor’s ARN to make new purchases. Considering that WhatsApp is one of the most widely used apps, the service provides convenience and ease of access to investors. It also automates the entire service process for them and gives a seamless experience. To initiate a SIP through WhatsApp, investors are required to key in basic details such as SIP registration mode, start and end date and so on. Investors can also check the payment status post transaction. A customer can complete the entire process in a few easy steps and will get an instant transaction confirmation. Investors can connect to the WhatsApp number of Aditya Birla Sun Life MF at 8828800033 from their registered mobile number. They will have to add Aditya Birla Sun Life Mutual Fund’s contact number to their contact list and then go on WhatsApp and initiate the transaction by sending ‘Hi’ on the chat and select the service they want to avail. The transactions can only be made if the customer is using WhatsApp through the registered number at Aditya Birla Sun Life Mutual Fund and is an existing customer.

DSP Mutual Fund has launched a web series ‘Cubicles’ in association with digital content and entertainment company The Viral Fever (TvF). ‘Cubicles’ is a fresh take on the life of millennials who are ready to dive into the corporate world and their experiences of the many firsts during this journey. The 5-episode series has released weekly on TVFPlay and TVF’s YouTube Channel. Cubicles emerged as a great fit to showcase investor educational concepts in a relatable, entertaining and slice-of-life manner. It is just a reflection of the lives of regular, 9-5 salaried, working professionals. ‘Cubicles’ is centred round the life of Piyush, a fresh entrant into the corporate world. The show depicts his work life and moments including his very first salary, working weekends, failures and successes that are a part of anyone’s corporate journey. Simultaneously, the series seamlessly integrates fundamental concepts on investing and mutual funds through the story.

SEBI has formed an 8-member committee to recommend investor education and protection activities. Among other things, the committee will recommend activities such as seminars, trainings, research programmes and publications to educate investors. Abraham Koshy, Ex-professor, IIM - Ahmedabad will chair the committee. From the MF industry, A Balasubramanian, MD and CEO, Aditya Birla Sun Life AMC is the lone member. The committee also includes three members from the market regulator:  Nagendraa Parakh, Executive Director of SEBI, V. S. Sundaresan, Executive Director of SEBI and N. Hariharan, Chief General Manager of SEBI. Apart from these five members, N. L. Bhatia, President Emeritus, Investor Education and Welfare Association, M. G. Parameswaran, Founder, brand-building.com and Ramesh Narayan, Founder, Canco are also part of the committee. SEBI Investor Protection and Education Fund will bear the expenses incurred for activities recommended by the committee.

…to be continued