FUND FULCRUM (contd.)

November 2020

 

The contribution of small towns or B30 cities to mutual fund industry's average assets under management of over Rs 28 lakh crore stood at 16 per cent and the balance was contributed by T30 cities, or the top 30 locations in India as at the end of October 2020, according to AMFI. Since the last few years, market regulator SEBI has been pushing asset management companies to reach out to small towns for increasing their assets base. Assets from B30 locations increased to Rs 4.61 lakh crore as at the end of October 2020 from Rs 4.47 lakh crore at the end of September 2020, a 3 per cent growth. B-30 locations tend towards equity schemes as 65 per cent of assets are from equity schemes, while the same is 35 per cent for 'Top 30' cities. About 15 per cent of the retail investors chose to invest directly, while 24 per cent of HNI assets were invested directly. Besides, 47 per cent 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. The mutual fund industry's total AAUM shot up to Rs 28.34 lakh crore at the end of October 2020 from Rs 27.74 lakh crore at the end of September 2020.

 

According to AMFI data, in terms of state-wise contribution, Maharashtra continued to be the biggest contributor (43.8 per cent) of the industry's AAUM in October 2020, followed by 8.4 per cent by New Delhi, 6.9 per cent each by Gujarat and Karnataka, and 5.2 per cent by West Bengal. Individual investors primarily hold equity-oriented schemes while institutions hold liquid and debt-oriented schemes. About 68 per cent of individual investor assets are held in equity oriented schemes, on the other hand, 75 per cent of institutions assets are held in liquid, money market and other debt-oriented schemes.

Piquant Parade

 

RBI has rejected Muthoot Finance's proposal to acquire IDBI AMC. Muthoot Finance informed the exchanges that its request for a no-objection certificate was not acceded to by the RBI on the ground that, “The activity of sponsoring a mutual fund or owning an AMC was not in consonance with the activity of operating a non-banking financial company (NBFC).” In November 2019, Muthoot Finance had signed a share purchase agreement to acquire 100% equity shares of IDBI AMC and IDBI MF Trustee Company for Rs 215 crore. This acquisition was to be the vehicle for Muthoot’s entry into the mutual fund industry.

Regulatory Rigmarole

SEBI has raised the overseas investment limit of individual fund houses to 600 million USD from 300 million USD. The overall limit for the industry remained unchanged at 7 billion USD. The move comes after fund houses sent a representation to SEBI to increase the limits wherever possible. Further, SEBI said in a circular that mutual funds can make investments in overseas ETFs subject to a maximum of 200 million USD per fund house, within the overall industry limit of 1 billion USD. Earlier, the overall ceiling for investment in overseas ETFs that invest in securities was 1 billion USD subject to a maximum of 50 million USD per mutual fund. Mutual funds launching new schemes intending to invest in overseas securities / ETFs have to ensure that the scheme documents disclose the intended amount that they plan to invest. Such limits disclosed in scheme documents are valid for a period of six months from the date of closure of the NFO. Thereafter the unutilized limit, if any, will not be available to the fund house for investment in overseas securities or ETFs and will be available towards the unutilized industry wide limits. Mutual funds need to report the utilisation of overseas investment limits on a monthly basis, within 10 days from the end of each month. The circular comes into force with immediate effect.

 

SEBI has asked fund houses to invest at least 10% of the total assets of all open ended debt schemes except overnight, liquid and gilt funds in liquid assets like cash, government securities, t-bills and repo on g-sec. Fund houses will be responsible for compliance with the requirement. This will come into effect from February 1, 2021. Further, the market regulator has asked fund houses to undertake stress test of all open ended debt funds. So far, such a test is applicable for liquid and money market funds. This is to come into effect from December 1, 2020. SEBI has asked AMCs to stipulate necessary guidelines to carry out stress testing of their debt schemes. Stress testing is evaluating impact of various risk parameters like interest rate risk, credit risk and liquidity risk on the scheme and its NAV under various scenarios. AMCs adopt predetermined methodology, which is approved by the board of AMC to carry out such a testing.

SEBI has introduced a new fund category in the mutual fund industry - flexi cap funds. Flexi cap funds will be in line with erstwhile multi cap funds where fund manager can take equity exposure of at least 65% across market capitalisation. SEBI’s decision has come after Mutual Fund Advisory Committee (MFAC) recommended the market regulator to give more flexibility to fund managers to maneuver across market capitalisation. Earlier, SEBI had asked fund houses to invest at least 75% of the total corpus across market capitalisation with at least 25% exposure each to large cap, mid cap and small cap stocks. Under the new category, the scheme should have a minimum investment of 65 percent of total assets in equity and equity-related instruments, while it is an open-ended dynamic equity scheme investing across large-cap, mid-cap, small-cap stocks. The AMC shall ensure that a suitable benchmark is adopted for the Flexi-Cap Fund. The market regulator has given an option to fund houses to convert existing schemes into a flexi cap fund. However, fund houses will have to use flexi cap nomenclature in their scheme.

The mutual fund industry celebrated investor awareness week between November 23 and November 29 in line with the World Investor Week organized by International Organization of Securities Commissions (IOSCO). Under this initiative, AMFI and fund houses held close to 240 webinars to spread awareness about mutual funds. In addition, AMFI has launched a ‘Mutual Funds Sahi Hai’ campaign on radio. The participation of retail investors is encouraging in terms of growth in the number of demat accounts and also mutual fund portfolios. There is a need for new investors to make informed investment decisions. Thus, investor awareness and education play an important role in educating the investor.

 It is time now for a brief ...break ...from blogging. I shall be back with a bang shortly.