It is vacation time again! Time for a short repose… I shall be back with a bang shortly.

 

 

FUND FULCRUM (contd.)

August 2021

 

AMFI data shows that the share of individual investors' assets in the mutual fund industry has risen to 53.8% in June 2021 from 50.5% in June 2020. The total assets of individual investors were Rs.18.34 lakh crore in June 2021 compared to Rs.13.18 lakh crore in June 2020. Individual investors include retail investors and HNIs. Meanwhile, institutional investors’ assets in the industry have fallen to 46.2% in June 2021 from 49.5% in June 2020. Institutional investors are mainly banks, insurance, pension funds and large corporates. The rise in individual investors’ assets can be attributed to the current boom in the equity market. The growth in individual assets is largely due to their exposure to equity funds and subsequent rally in the market. High risk reward in equity mutual funds make it attractive for many young investors to start investing. Further analysis of the data shows equity schemes account for 88% of the total assets from individual investors. Similarly, debt schemes (62%), liquid schemes (85%) and ETFs, FoFs (90%) get majority of their assets from institutional players. Individual investors hold 72% of their assets in equity-oriented schemes while institutions hold 69% of their assets in liquid / money market schemes and debt-oriented schemes. Depleting asset quality in debt papers and instances of trouble in debt funds in recent times have kept retail investors away from debt funds.

 

Piquant Parade

 

Markets regulator SEBI has granted an in-principle approval to Bajaj Finserv to set up AMC business. The company would be setting up an Asset Management Company (AMC) and the Trustee Company, directly or indirectly i.e., by itself or through its subsidiary in accordance with applicable SEBI Regulations and other applicable laws. The company had applied for a mutual fund license with SEBI in September 2020. The in-principle approval means that the company can start the process of setting up an AMC business. However, the company will have to wait for final approval to launch its schemes. This year, SEBI has so far granted mutual fund license to two applicants — NJ IndiaInvest and Samco Securities. They received in-principal approvals in 2019.

Regulatory Rigmarole

The Securities and Exchange Board of India (SEBI) announced on July 30, 2021 that instant access facility would now be permitted in overnight schemes along with liquid schemes of mutual funds. The change has been brought into effect by the market regulator by partially modifying its circular related to instant access facility issued in May, 2017. "MFs (All Mutual Funds)/ AMCs (Asset Management Companies) can offer Instant Access Facility (IAF) only in Overnight and Liquid Schemes of the MF," the fresh circular issued by SEBI stated. SEBI also announced that, from December 1, 2021, unclaimed redemption and dividend amounts would be permitted for investment in a separate plan of only overnight scheme. "The unclaimed redemption and dividend amounts, that are currently allowed to be deployed only in call money market or money market instruments, shall also be allowed to be invested in a separate plan of only Overnight scheme / Liquid scheme / Money Market Mutual Fund scheme floated by Mutual Funds specifically for deployment of the unclaimed amounts," it said. "Such schemes where the unclaimed redemption and dividend amounts are deployed shall be only those Overnight scheme/ Liquid scheme / Money Market Mutual Fund schemes which are placed in A-1 cell (Relatively Low Interest Rate Risk and Relatively Low Credit Risk) of Potential Risk Class matrix," SEBI added. Markets regulator SEBI asked mutual funds to maintain current accounts in an appropriate number of banks for receiving subscription amount and payment of redemption and dividend. The move is aimed at facilitating financial inclusion, convenience of investors and ease of doing business, according to a SEBI circular.

 

Now, fund houses can go ahead with change in fundamental attributes, merger of their schemes, rollover of existing close end funds and conversion of close end scheme to open end schemes if they do not hear from SEBI within 21 days. In a circular, SEBI said that the application filed by fund houses for scheme merger, change in fundamental attributes and so on should be considered on record if no modification is suggested or no queries are raised by SEBI within 21 working days. The timeline will also be applicable on applications relating to Regulation 24 (b) of mutual fund rules relating to setting up of new businesses which are not in conflict with existing business by AMCs like offering offshore advisory and PMS business. The regulator said the move will bring uniformity and lead to ease of doing business. However, SEBI said it may fail to adhere to the timeline if it raises a question or suggests modifications to the AMC. Further, the application should be complete in all aspects and approval should not require “wider consultation”.

 

In a series of amendments to regulations related to AIFs and PMS, SEBI has come out with the parameters for qualifying as accredited investors. With this, any individual, HUF, family trust or sole proprietor with annual income of at least Rs.2 crore can become accredited investors. Criteria to become an accredited investor include net worth of at least Rs.7 crore including Rs.3.75 crore of financial assets, annual income of Rs.1 crore and minimum net worth of Rs.5 crore including Rs.2 crore in financial assets, for body corporates and trusts, net worth requirement is Rs.50 crore and each partner has to meet eligibility criteria separately to become accredited investors. Accredited investors are those investors who are assumed to have a better understanding of risks and returns associated with financial products. These investors have a higher financial capacity and a greater ability to absorb loss.

 

In a recent amendment to the mutual fund regulations, SEBI said that they would ban fund houses from launching new schemes for one year if they do not adhere to skin-in-the-game regulations. SEBI may also forfeit the invested amount by the fund house in any of the schemes for such a violation. However, the market regulator will give a chance to fund houses for hearing before taking such an action. These regulations will come into effect from May 1, 2022. The market regulator has done away with the existing norms on skin-in-the-game in which fund houses have to invest 1% of the amount raised during NFO or Rs.50 lakh, whichever is lower. Prima facie, it looks like fund houses will have to invest more in riskier schemes like equity funds compared to less risky schemes like debt funds. However, SEBI is yet to clarify how the new skin in the game norms will be put in practice.

 

In a guidance note to a non-individual RIA, SEBI said that RIAs cannot become sub broker and offer financial products of capital markets with embedded commission. SEBI said even if RIA does not receive commission from such a partnership, they should not offer investment plans with embedded commission. SEBI said the RIAs would have to distribute direct plans of financial products of capital markets to all advisory clients. This means, RIAs cannot become sub broker with a broker who does not offer execution in direct plans. SEBI said that RIAs cannot receive consideration including any commission or referral fees directly or indirectly from advisory clients at group or family level. This has come after Vansh Capital asked SEBI if they could offer execution services through a broker and not take any consideration from the main brokers for such a transaction.

 

Mutual funds that use options strategies will now have to issue justification if they do not exercise a favourable put option. "A justification for not exercising the put option shall be provided by the mutual fund to the valuation agencies, Board of AMC and trustees on or before the last date of the notice period," SEBI said in a circular. The regulator said that a put option will be considered 'in favour of the scheme' if the yield of the valuation price ignoring the put option is more than the coupon rate by 30 basis points. Certain debt securities have put options. This move will put pressure on AMCs and fund managers to effect the put option or provide justification for not exercising the option. If a fund manager does not exercise a favourable put option, valuation agency will have to take ultimate or last maturity as the maturity of the security. Suppose, there is a five-year security with annual put option, if the fund manager decides not to exercise the put option during the first year, they will have to justify the decision. The valuation agency, on their part, will have to consider it as a four-year security and not as a one-year security during valuation. The circular will come into effect from October 1, 2021.

 

Soon the MF industry will have a uniform platform through which clients can execute financial and non-financial transaction. SEBI has asked AMFI, MF trustees, depositories and RTAs to introduce a uniform and user-friendly platform for investors where they can execute transaction like investment, redemption and switch and non-financial transaction such as downloading account statement, updating email id and phone number, changing address and bank details and so on across all fund houses. Both CAMS and KFintech have been entrusted to develop this platform under the guidance of SEBI. To begin with, the platform will offer non-financial transactions and later become fully operational by December 31, 2021, said SEBI. The industry will launch an awareness campaign to promote this platform. This platform aims to offer single window for all services related to mutual funds. There is no need to visit CAMS and KFintech separately to download account statement, make changes to details and so on. Integrated system ensures uniform application form and nomination facility across fund houses. The platform gives investors access to all financial and non-financial services of fund houses. The platform will be made available to MFDs, RIAs and fund houses to offer financial and non-financial transaction to their clients. It will have robust cyber security and resilience framework.

India’s financial wealth has been growing since 2015. In fact, the financial wealth of India has grown by 11% per annum between 2015 and 2020 to reach $3.4 trillion and is expected to continue growing by 10% per annum to $5.5 trillion by 2025, according to a report released by the Boston Consulting Group (BCG). The report reveals that India is expected to lead growth in financial assets in terms of percentage. Retirees, one of the world’s fastest-growing demographics, are an appealing market for wealth managers. Globally, individuals over 65 own $29.3 trillion in financial assets accessible to wealth managers. That figure will grow at a CAGR of close to 7% over the next five years. By 2050, 1.5 billion people globally will fall into the above 65 category representing an enormous source of wealth. Liabilities are expected to grow by 9.4% per annum to $1.3 trillion by 2025. Bond markets are expected to grow the fastest with 15.1% per annum. Life insurance and pensions will be third largest asset class in the future. North America, Asia (excluding Japan), and Western Europe will be the leading generators of financial wealth globally, accounting for 87% of new financial wealth growth worldwide between now and 2025. China is on track to overtake the US as the country with the largest concentration of ultra HNIs by the end of the decade. The faces of the ultra HNIs are changing too, with the rise of the next-generation segment. These individuals, between 20 and 50 years of age, have longer investment horizons, a greater appetite for risk, and often a desire to use their wealth to create positive societal impact as well as earn solid returns. Many wealth managers are not yet ready to serve these new ultra HNIs. High-growth markets represent a massive opportunity but wealth managers must build a genuine understanding of local differences and also key demographic changes. Women now account for 12% of ultra HHIs, most of whom are based in the US, Germany, and China. The next generation segment is also going to be an influential driver of future growth in the next decade or so. Wealth managers should offer a personalized service in order to effectively capture the next wave of growth.

 FUND FULCRUM

August 2021

 

Mutual funds broke many records in the month of July 2021. Net inflow in equity funds has reached its all-time high figure of Rs.22,584 crore in July 2021. This is the highest net inflow for equity funds at least since the re-categorization of schemes by SEBI. Monthly SIP inflow of Rs.9,609 crore is an all-time-high for mutual funds. New SIP registrations too have registered a new peak of 23.79 lakh, according to the latest data released by AMFI. RBI's accommodative stance, healthier earnings growth, vaccination-driven steady containment of COVID-19 pandemic and global and domestic liquidity is driving the equity markets to historic highs. Taking cue, retail investors too are participating in the equity rally, largely through mutual fund SIPs, on a continued rising quantum at record levels. In July 2021, NFO of ICICI Prudential Mutual Fund's flexicap scheme collected Rs.9,800 crore, which is highest for an equity fund NFO. Inflows in debt funds is high too. The category has collected Rs.73,694 crore in the previous month to take total debt AAUM to Rs 14.73 lakh crore. Overall, equity schemes has witnessed net inflows of Rs.22,584 crore, which is 4.5 times higher than the June inflow of Rs.5,988 crore. The July 2021 inflow is highest at least since scheme re-categorization. Apart from value funds (Rs.462 crore outflow) and ELSS (Rs.512 crore outflow), all other equity schemes have posted inflows. Flexicap funds have recorded highest inflows at Rs.11,508 crore followed by sectoral funds (Rs.5,729 crore inflows) and small cap funds (Rs.1,779 crore inflow). Closed-ended equity schemes have continued to post outflows largely due to maturity of a few schemes. The outflow in July 2021 was Rs.1,840 crore. Net inflow in open-ended debt funds was Rs.73,694 crore as against Rs.3,566 crore inflow in June 2021 and Rs.44,512 crore in May 2021. Liquid funds (Rs.31,740 crore inflow) and money market funds (Rs.20,910 crore inflow) were biggest contributors in total debt inflows. Corporate bond funds and short duration funds have registered highest outflows at Rs.3,068 crore and Rs.1,734 crore, respectively. Inflows in hybrid schemes has gone up 58% to Rs.19,481 crore from Rs.12,361 crore in June 2021. Arbitrage fund was the biggest contributor for the second month in a row. The category received net inflows of Rs.14,924 crore in July 2021. Dynamic asset allocation funds have recorded second highest inflows in the category at Rs.2,453 crore. Industry AAUM has gone up by over Rs.1 lakh crore to Rs.35.15 lakh crore in July 2021. In June 2021, the AAUM was Rs.34.10 lakh crore. Total number of SIP accounts rose by 15 lakh to 4.17 crore, thanks to a record high 23.79 lakh new SIP registrations. Gross inflows through SIP has risen to a record Rs.9,609 crore in July 2021. Fifteen NFOs were launched in July 2021 and they together mobilized Rs.17,332 crore.

 

AMFI’s recently published figures show that individual investors held Rs. 18.34 lakh crore i.e. 54% of the industry assets as on June 2021. Individual-investor assets include investments by HNIs as well. Individual investors largely invested in equity-oriented schemes (73%) followed by debt-oriented schemes (21%). Equity-oriented schemes include equity and aggressive hybrid funds. Individual equity assets jumped by 49% to Rs. 13.37 lakh crore in June 2021. Similarly, individual investments in debt-oriented schemes saw a rise of 23% from Rs. 3.07 lakh crore to Rs. 3.79 lakh crore. The biggest surge (121%) was in the ETFs/FOFs category where the assets grew from Rs. 15,726 crore to Rs. 34,787 crore over the last year. On the other hand, individual investors reduced their holding in liquid/money market schemes by around 15%. These assets dipped from Rs. 97,874 crore to Rs. 83,277 crore over the last year. This can be attributed to mark-to-market gains and growing popularity of mutual funds. Many investors have been investing in equity funds due to strong performance of mutual funds compared to other financial products. Individual investors primarily prefer regular plans i.e. distributors. Of the total individual assets of Rs. 18.34 lakh crore, 80% (Rs. 14.67 lakh crore) was facilitated by distributors. A review of the geographic spread shows that 26% i.e. Rs.4.77 lakh crore has come from B30 locations. Of this, around 85% of the assets i.e. Rs. 4.03 lakh crore was brought in by distributors. This forms around 22% of the total individual assets. Asset-wise composition shows that 84% of individual equity assets, 72% of individual debt assets and 63% of individual liquid/money market schemes have come through distributors. In the case of ETFs and FoFs, 54% of individual investors went through direct plans.    

 

AMFI data shows that HDFC MF, SBI MF and ICICI Prudential MF are the top choices for retail investors. These fund houses have held the highest retail AAUM in the said order. As on June 2021, their retail asset base stood at Rs. 94,306 crore, Rs. 79,677 crore and Rs. 73,299 crore respectively. Nippon India MF and Aditya Birla Sun Life follow the top three fund houses with retail AAUM of Rs. 69,579 crore and Rs. 62,964 crore, respectively. The next five fund houses having the highest retail AAUM are Axis MF (Rs. 61,600 crore), UTI MF (Rs. 57,953 crore), Mirae Asset MF (Rs. 34,759 crore), DSP MF (Rs. 34,373 crore) and Franklin Templeton MF (Rs. 32,632 crore). The retail AUM of the top 25 fund houses is Rs. 7.65 lakh crore. Of the total retail AUM, Rs. 6.46 lakh crore or 84% has come from equity assets. Debt funds have contributed around Rs. 59,864 crore (8%) and the rest Rs. 59,175 crore (8%) has come from hybrid schemes, exchange traded funds (gold & others) and fund of funds investing overseas. HDFC MF has topped the equity retail AAUM category with assets of Rs. 65,808 crore whereas UTI MF has the highest debt retail AAUM of Rs. 14,882 crore.

 

Axis Mutual Fund’s average equity AUM of Rs 1.06 lakh crore was the highest among all mutual funds in the first quarter of FY 2022. HDFC MF, which was at the top in the previous quarter, occupies second spot with assets of Rs 1.04 lakh crore, shows an analysis of quarterly average AUM (QAAUM) data. Equity AUM includes pure equity schemes and ELSS. ICICI Prudential MF has the third highest equity AUM of Rs 1.02 lakh crore followed by SBI MF with Rs 1.01 lakh crore assets. In absolute terms, the equity AUM of Axis MF has gone up by Rs 9,060 crore. HDFC MF and SBI MF have seen their AUM go up by Rs 4,927 crore and Rs 7,743 crore, respectively. The quarter marked the entry of four fund houses — SBI, HDFC, ICICI Prudential and Axis — in the Rs.1-trillion equity AUM club with a 5-9% growth in equity assets. Axis MF has registered the highest growth of 9%. Mirae Asset, Edelweiss, Invesco, Canara Robeco, PPFAS and PGIM India have posted double digit growth in equity AUM. PGIM India's AUM grew by 48% during the quarter while PPFAS reported a 33% jump in equity assets. Overall, the top 25 mutual funds manage equity assets worth Rs 10.3 lakh crore as against Rs 9.68 lakh crore in the fourth quarter of FY 2021.

 

Quant MF, Trust MF and ITI MF were the top three fastest growing mutual funds during the April-June period (Q1) of FY 2021-22. While Quant MF has witnessed 127% gain in AUM, Trust MF and ITI MF saw 37% and 32% rise in AUM, according to the latest AMFI data. PPFAS MF and PGIM India MF were the other mutual funds to register over 20% growth. PPFAS MF's AUM rose by 30% to Rs. 11,342 crore, while PGIM India's assets went up 24% to Rs. 8,110 crore during the first quarter of FY 2022. However, the stellar growth of these mutual funds came on a very low base. In absolute terms, top ranked fund house SBI MF's AUM grew at the fastest pace with Rs 18,700 crore addition in AUM. Kotak Mahindra MF came in second with Rs 12,800 crore increase in AUM. Nippon India MF, Axis MF and ICICI Prudential MF were the next three in the list. Franklin Templeton MF and Yes Bank MF continued to see a decline in the first quarter of the new financial year. FT MF's AUM shrank 27% to Rs 60,500 crore last quarter while Yes Bank MF witnessed a 26% fall in AUM.

 

AMFI’s latest data shows that 16% of assets in the MF industry has come from B30 cities amounting to Rs.5.56 lakh crore as on June 2021, rising from Rs.4.01 lakh crore in June 2020. Assets in T30 cities stood at Rs.28.54 lakh crore in June 2021. Further analysis of the data shows that a large chunk of the B30 assets is in equity oriented schemes. Of the total B30 AUM, 70% was from equity-oriented schemes while the remaining 30% belonged to debt schemes as on June 2021. Many people in B30 cities prefer equity funds as they have adequate exposure to debt schemes through bank FDs and pension funds. This ratio is reversed in T30 cities due to presence of institutions and corporate houses. Nearly 60% of the total T30 AUM is invested in debt schemes. Over 26% of the assets held by individual investors is from B30 location. Investors in these locations prefer investing in mutual funds through distributors. AMFI data shows that 86% of the total individual assets in B30 location has been in regular plan. SBI, ICICI Prudential and HDFC were the top three fund houses with highest assets in T30 location as on June 2021. SBI Mutual Fund has retained the top rank in T30 market share. The fund house has 79% of its total assets i.e. Rs. 4.24 lakh crore of the total Rs.5.38 lakh crore in top 30 location. ICICI Prudential Mutual Fund and HDFC Mutual Fund occupy the next two spots with assets of Rs. 3.63 lakh crore each. Aditya Birla Sun Life Mutual Fund and Kotak Mahindra Mutual Fund follow the top three fund houses with assets of Rs.2.39 lakh crore and Rs. 2.30 lakh crore, respectively in T30 location. The next five fund houses with the highest T30 market share were Nippon India Mutual Fund (Rs. 2.01 lakh crore), Axis Mutual Fund (Rs.  1.79 lakh crore), UTI Mutual Fund (Rs.  1.45 lakh crore), IDFC Mutual Fund (Rs.  1.18 lakh crore) and DSP Mutual Fund (Rs. 0.90 lakh crore). These findings are based on the review of monthly AAUM data published by fund houses. The total asset of the top 25 fund houses was Rs. 33.68 lakh crore of which 84% i.e. 28.21 lakh crore was from T30 locations. Of these T30 assets, 36% was held in equity (Rs. 10.03 lakh crore) and 49% was in debt (Rs. 13.72 lakh crore).

 

AMFI’s latest data shows that New Delhi, Goa and Maharashtra are the top three states in terms of AUM per capita. AUM per capita is the total AUM of the state/UT divided by total number of folios. New Delhi and Maharashtra which collectively hold more than half of the industry assets as on June 2021 held the first and third spots respectively, in terms of AUM per capita. Goa, which has the 18^th rank in terms of assets, came third in this category. New Delhi, Goa and Maharashtra have Rs. 1.44 lakh, Rs. 1.27 lakh and Rs. 1.23 lakh of AUM per capita respectively. Next in line were Chandigarh and Haryana, whose AUM per capita is Rs. 86,000 and Rs. 45,000 respectively. Assam (Rs. 4,796), Tripura (Rs. 3,251), Jammu & Kashmir (Rs. 3,027), Bihar (Rs. 2,287) and Manipur (Rs. 1,968) were in the bottom five. The top five states in terms of AUM per capita also made it to the top five list of AUM % of GDP category. Their rankings slightly varied with Maharashtra on the top with 62.2% followed by New Delhi (36.9%), Goa (25.4%), Chandigarh (23.5%) and Haryana (17.6%). On the other hand, Arunachal Pradesh (3.6%), Mizoram (3.0%), Jammu & Kashmir (2.6%), Tripura (2.6%) and Manipur (2.3%) occupied the bottom five rankings.

 

Piquant Parade

Samco Securities has received SEBI's final approval to start mutual fund business. The discount broker applied for the licence in June 2018 and received in-principle approval in August 2019. Samco Securities plans to offer only active funds as of now. It will look at passive space after some time. The company is expected to take a different approach and offer unique mutual fund products, the details of which are yet to be finalized. Samco is the second applicant to get mutual fund licence this year. NJ IndiaInvest received SEBI's final go ahead in May2021. The company plans to launch two rules-based passive schemes.

 

As Indian investors are warming up to the idea of passive investing, many new and upcoming mutual fund players are planning to offer only passive funds to investors. Among the numerous fintechs and PMS firms in the process of starting mutual fund business, Zerodha and Angel Broking have confirmed that they will sell only passive schemes. While Zerodha is awaiting mutual fund license from SEBI, Angel Broking is in the advanced stage of applying for the regulator's approval. Very few active managers have consistently added value. Most investors are not concerned about alpha. They are looking for simple, transparent and easy to understand products that can help them fulfill their long term goals like retirement. Angel Broking will be using the rule-based investment approach to offer smart passive products to investors. A combination of smart beta funds and passive ETFs (Exchange Traded Funds) would cover the complete investment needs of any investor at far lower costs, enabling new customers to experience equity with ease. Passive investing has gained momentum in India in the last one year or so. There have been a plethora of index fund and ETF launches in recent months. NSE has 100 ETFs listed on its platform and 21 one of them were launched in the last one year alone. The AUM of index funds doubled in the last calendar year from Rs 7,944 crore to Rs 15,359 crore. In addition, the AUM of ETFs (excluding gold) rose 46% from Rs 1.75 lakh crore to Rs 2.57 lakh crore.

 

As the industry has successfully imbibed the notion of ‘Mutual funds sahi hai’ among its investors, it now needs to inculcate the culture of ‘Saarthi zaroori hai’, according to a 14-point-action document prepared by Boston Consulting Group (BCG) and Confederation of Indian Industry (CII) with inputs from the mutual fund industry. The document has urged the industry to build greater emphasis on role of advisors and expand their productivity and reach by leveraging technology. "The B30 segment offers a wide playfield that is still an untapped territory with low penetration. For expanding this market, all stakeholders – regulators, asset managers, distributors, investors – need to come together to continue with the existing incentive structure and take this business forward by mobilizing increased number of investors," the action document said. It further stated that the industry needs to attract more people into the business of distribution, which can be done by campaigning within educational institutions and educating people about the profitable aspects of becoming a Mutual Fund Distributor. Citing a recent Boston Consulting Group (BCG) survey, the release said that 80% of urban consumers who bought mutual fund have digital footprint and 66% of them were influenced digitally during the purchase process. "MF distributors and advisors can leverage this increase in acceptability of digital channels to improve efficiencies in their business model by unlocking significant time earlier spent on physical travel, physical form filling, manual tracking and reporting, etc.," the report said. Other recommendations for the industry included simplification of offerings, using technology to drive efficiency of fund managers, strengthening internal risk management, communicating risk-return effectively to retail investors and leveraging new strategies to deliver enhanced performance.

 

To be continued…

 NFONEST

August 2021

Three NFOs of various hues are open at present and find a place in the August 2021 GEMGAZE.   

UTI Focused Equity Fund

Opens: August 4, 2021

Closes: August 18, 2021

UTI Mutual Fund launched UTI Focused Equity Fund, an open ended equity scheme investing in a maximum of 30 stocks across market caps. Focused investing is all about high-conviction and the fund house philosophy has two dimensions to generate portfolio alpha. The first is to hand-pick a select set of companies from the larger universe by relying on in-house score. Alpha investment philosophy aided by rich experience in research and fund management to separate the wheat from the chaff. Second is to build the portfolio by building significant positions in each company, which may accentuate the portfolio outcome. UTI Focused Equity Fund will pursue bottom-up approach in identifying stocks and will follow a blend strategy of investing in both growth and value stocks with a tilt towards growth stocks. The Fund endeavours to be optimally diversified investing across the sectors and market capitalization. The scheme will benchmark its performance to the Nifty 500 Index (TRI). The fund is managed by Mr. Sudhanshu Asthana and Mr. Kamal Gada (Fund Manager for making overseas investments).

SBI Balanced Advantage Fund

Opens: August 12, 2021

Closes: August 25, 2021

SBI Mutual Fund launched the SBI Balanced Advantage Fund, an open-ended dynamic asset allocation fund that seeks to generate long term capital appreciation by aiming to capture the potential upside and limit the downside in volatile equity markets. SBI Balanced Advantage Fund would manoeuvre across equity for long-term wealth creation and fixed income to provide stability to the overall scheme portfolio. The scheme would invest between 0 percent and up to a maximum of 100 percent investment in equity and equity related instruments. It will also invest minimum 0 percent and up to a maximum of 100 percent investment in debt securities (including securitised debt) and money market instruments (including Triparty Repo, Reverse Repo and equivalent) and 0 percent to 10 percent in units issued by REITs and InvITs (in line with SEBI limits prescribed from time to time). The fund will focus on achieving superior risk-adjusted returns, while being true to label, it will leverage the benefit of having the flexibility to arrive at an optimum asset allocation. SBI Balanced Advantage Fund would track CRISIL Hybrid 50+50 – Moderate Index TRI. The fund managers for SBI Balanced Advantage Fund are Mr. Dinesh Balachandran and Mr. Gaurav Mehta for equity portion, Mr. Dinesh Ahuja for debt portion, and Mr. Mohit Jain for managing overseas investments.

 

Canara Robeco Value Fund

Opens: August 13, 2021

Closes: August 27, 2021

Canara Robeco Asset Management Company Limited has launched their NFO, Canara Robeco Value Fund – an open-ended equity scheme that would follow a value investment strategy, to invest in businesses that are trading at a price less than their intrinsic values and are expected to realize their true worth in the future. The new scheme, Canara Robeco Value Fund, using the most suitable valuation technique, would identify and select undervalued businesses, based on various financial parameters as well as the valuation techniques for arriving at the company’s intrinsic value. Canara Robeco Value Fund would then construct portfolio keeping in mind opportunity size and risk limits defined for the portfolio. The portfolio construction process will be aided by various in-house quant models with the aim to invest in businesses that have the potential to do well due to robust fundamentals. Canara Robeco Value Fund would take significant exposure into equities and aim to generate long-term capital appreciation from a diversified portfolio in the Indian markets with higher focus on undervalued companies. Canara Robeco Value Fund would invest in those undervalued stocks that provide reasonable margin of safety, helping minimize the downside risk. Mr. Vishal Mishra, Fund Manager – Equities, would be managing the new scheme Canara Robeco Value Fund. S&P BSE 500 TRI would be the benchmark for Canara Robeco Value Fund.

 

Aditya Birla Sun Life Nifty SDL Plus PSU Bond Sep 2026 Index, Union Retirement Fund, Mirae Asset Hang Seng ETF, HSBC Mid Cap Equity Fund, Nippon India Innovation and Technology Edge Fund, Axis Small Cap 50 Index Fund, Kotak MNC ETF Fund of Fund, Kotak Midcap 50 ETF Fund of Fund, Kotak Consumption ETF Fund of Fund, Nippon India Nifty Alpha Low Volatility 30 Index Fund, Union Money Market Fund, Navi Nifty Next 50 Index Fund, Navi Nifty Midcap 150 Index Fund and Navi Nifty Small Cap 250 Index Fund are expected to be launched in the coming months.

 

 

 

GEM GAZE

August 2021

It is widely accepted that if you zero in on the fastest growing sector or sectors in which to invest, you are ahead of the crowd and can outperform the markets. In the long run, the path and hence performance of a sector is contingent upon the strength of the revenue growth and the demand for the products and services sold by the companies within a sector. The August 2021 GEMGAZE would provide some of the best sector mutual funds which can fetch phenomenal returns provided you get the timing right.

The consistent performance of all four funds in the July 2020 GEMGAZE is reflected in all the funds holding on to their esteemed position of GEM in the August 2021 GEMGAZE.  

Canara Robeco Infrastructure Fund Gem

Gaining on growth

Canara Robeco Infrastructure Fund, incorporated in December 2005, is a thematic fund completely focused on identifying growth-oriented companies within the infrastructure space. The fund, with an AUM of Rs 142 crore, aims at having concentrated holdings with 77.34% of the assets in the top three sectors Construction, Engineering and Finance. The fund has large market capitalization stocks at 48.04%. The scheme's fund manager avoids companies operating in segments that have high entry barriers. The fund benchmarks the performance of its portfolio against the S & P BSE India Infrastructure TRI. Canara Robeco Infrastructure has been among the better performers in its category. The fund’s one-year return is 71.94% as against the category average return of 76.22%. In the past five years, the scheme has given 11.07% returns, while its category has given 12.44% returns in the same period. In the past ten years, the fund has given 12.08% returns, while the category has given 10.96%. The expense ratio of the fund is high at 2.59% while the portfolio turnover ratio is 92%. The fund is managed by Mr. Shridatta Bhandwaldar and Mr. Vishal Mishra.

 SBI Consumption Opportunities Fund (erstwhile SBI Magnum FMCG Fund) Gem

The triumphant topper

In the past one year, the Rs 748 crore, SBI Consumption Opportunities Fund, incorporated in July 1999, is perched at the top with 26% of the assets in large caps. 73.46% of the assets are in the top three sectors FMCG, Services and Textiles. The expense ratio is high at 2.54% and the portfolio turnover ratio is 40%. Braving all odds, the one-year return of the fund is 64.97% as against the category average of 48.87%. Over the five and ten year periods, the fund posted 13.33% and 17.27% of CAGR, respectively as against the category average of 13.95% and 15.53% respectively. SBI Consumption Opportunities Fund is benchmarked against the NIFTY India Consumption TRI. Mr. Saurabh Pant has been managing the fund since June 2011.

ICICI Prudential Banking & Financial Services Fund Gem

Bountiful bottom line

ICICI Prudential Banking & Financial Services Fund, incorporated in August 2008, invests predominantly in large and midcap financial companies. 66.07% of the portfolio consists of large caps. This fund adopts a 'bottom-up' strategy, to identify and pick its investments across market capitalizations. The fund has not only outperformed its benchmark, the NIFTY Financial Services TRI but has also outperformed other banking sector funds. The current AUM of the fund is Rs 4,677 crores and the one-year return is 69.30% as against the category average return of 62.45%. Over the five and ten year periods, the fund posted 13.79% and 16.99% of CAGR, respectively as against the category average of 10.87% and 9.36% respectively. The expense ratio is 1.94% and the portfolio turnover ratio is 55%The fund is managed by Mr. Roshan Chutkey since January 2018.

 ICICI Prudential Technology Fund Gem

Opportunities in the offing

Consumers’ appetite for new technologies has been driving growth in the technology sector for years. This is providing good opportunities for technology companies. ICICI Prudential Technology Fund is a Rs 3494 crore technology fund, which invests in large technology oriented companies. It invests in companies listed in the BSE Teck. Its portfolio has 57.63% exposure to large cap companies. The fund seeks to invest in knowledge sectors like IT and IT Enabled Services, Media, Telecommunications, and others. The one-year return of the fund is 106.16% as against the category average of 86.09%. The five-year and ten-year returns of the fund are 28.5% and 23.88% as against the category average of 25.90% and 21.14% respectively. The fund is benchmarked against the S& P BSE IT TRI. The expense ratio of the fund is 2.26% while the portfolio turnover ratio is 67%. The fund is managed by Mr. Sankaran Naren since July 2017 and Vaibhav Dusad since May 2020. Incorporated in March 2000, this fund which is one of the oldest technology sector funds available in market has lived up to the expectation of investors over the past years and is one of the most popular in this category.

FUND FLAVOUR

August 2021

Sectoral Mutual Funds…

Sectoral funds are equity funds that concentrate their portfolio towards equities of companies across all market capitalizations of a particular sector. These funds invest only in businesses that operate in a particular sector or industry. For instance, a sector fund may invest in sectors like Banking, Pharma, Construction, or FMCG sectors, among many others. According to the guidelines laid down by SEBI, sectoral funds are bound to invest a minimum of 80% of their assets in the specified sectors. The remaining 20% can be allocated to other debt or hybrid securities. On the other hand, thematic funds are the ones that invest in stocks based on a particular theme. The theme chosen by such funds may revolve around areas such as rural consumption, commodity, defense, etc. For instance, a thematic fund may focus on rural consumption and invest in funds of all sectors that favour this theme. The major difference between both these funds is that sectoral funds invest in only one sector, whereas thematic funds invest across multiple sectors that are woven around a common theme.

 

Rise with the tide…

The advantage of investing in sector funds is that if a sector is performing exceptionally well, there is a chance to book inflation-beating profits but that is contingent on investors being able to hit the bull’s eye when entering and exiting the market, especially if the investment is short-term. This is because sectors are cyclical in nature and they may not always be aligned with. Sectoral funds tend to offer potentially high returns if chosen correctly. Sector funds are an excellent investment option for long-term financial requirements.

A risky proposition…

Since sector funds are a class of equity mutual funds, they essentially carry concentration, volatility and liquidity risks. Since these funds invest heavily in equities of a specific sector, they carry a high risk of concentration. Sector funds are generally categorized under the riskiest class of mutual funds. High-risk investments come with high return potential. The market fluctuations and the resultant volatility risk have a direct influence on these funds. If the sector is performing well, then the fund may provide excellent returns. On the other hand, if the sector fares poorly, the losses may be magnified.  Liquidity risk is the probability of the fund manager being in a position wherein he fails to sell the underlying securities. Since a sectoral fund is launched for a specific sector, the risk increases because of concentrated investments. In accordance with SEBI regulations, sector funds have to invest at least 80 per cent of their assets in their mandated sector. Hence, their fund managers cannot exit the mandated sectors even if they are convinced of its prolonged underperformance due to business cycles, government regulations or other factors. Returns generated by sector funds primarily depend on the performance of the respective sector, which these funds are mandated to invest in. This leads to higher risk for sector funds compared to the sector agnostic diversified equity funds.

 

Apt for…

Sector funds are suitable for aggressive investors or those willing to take higher levels of risk in exchange for the potential to earn overwhelming returns. The risk of concentration of these funds is on the higher side since these funds invest in equities of a particular sector. Generally, sector funds are best suited to investors who already own diversified funds in their core allocations, and want an opportunistic investment in the sector. These also appeal to institutional investors who want focused exposure to a particular sector, and would rather own a basket of companies in the sector rather than identifying individual businesses within the sector. If an investor's portfolio lacks exposure in a specific sector, then the sector funds can be an option to invest in the sector in a diversified manner. Investors must understand how the companies of the sector they are choosing to invest, go about their business. If not, it is not advisable to invest in these funds.

 

Criteria to be considered

• Investors have to be aware of and ensure the following before they invest in a sector fund:
• ·         Sector funds carry higher levels of risk and they must be willing to assume this risk.
• They have to ensure that their investment objectives are in line with the objectives of the fund.
• Sector funds may require them to carefully analyze and assess the market conditions before investing in a sector fund.
• While investing, they must keep their portfolio diversified across multiple large cap and mid cap funds, along with sectoral and thematic funds.
• Since both these funds depend on the performance of sectors (individually or otherwise), there are high chances that their portfolio will face fluctuations in both, bullish and bearish markets.
• Investments in sectoral and thematic funds are clearly suitable only for investors who are active and have a clear understanding of the market and macroeconomic conditions.
• Being cyclical in nature, they must carefully keep a check on the entry and exit timing of sectoral funds.
• The suggested investment horizon for these funds is more than 5 years; if the investors redeem their investment before that, it is much likely that they would not receive positive results
• While investing in these funds, investors must consider the future growth opportunities in that sector and then make a choice, rather than looking at the past performance of the fund and/or sector
• Investors should not invest more than 5-10% of their funds in such schemes, considering the volatility of sectoral funds
• Before investing in sector or thematic funds, investors should check the earnings of the sector and whether the theme is sustainable. There is no point plunging into these investments if the sector is not making progress or if the theme is just a fad.
• Investors should estimate their expense ratio before investing. Asset Management Companies (AMCs) charge an annual fee for managing funds. This covers the fund’s operating and other expenses. It is better to avoid investing in funds where the expense ratio can eat into their returns.

 

Performance

Given that most sectoral and thematic funds, particularly those belonging to technology and healthcare sectors, have outperformed the broader market (S&P BSE 500) by a fair margin since the lows of March 2020, such funds are gaining traction from mutual fund investors. Sectoral funds have on an average delivered 86.5% returns in the last 1 year. Their 3 and 5 year returns are 31.99% and 26.78%. The net assets under management of sectoral/thematic funds rose 79% to Rs 1.1 lakh crore in April 2021 from Rs. 56,800 crores in April 2020 as investors typically tend to chase recent performance. After the outbreak of Covid-19 early last year, the stock markets witnessed significant drawdowns of around 40% on concerns over the economic impact. However, after announcements of massive fiscal and monetary stimulus across the globe, followed by optimism around vaccine discovery and roll-outs, equity markets bounced back sharply. Sectors like pharma, information technology, banking, etc., continue to draw the attention of investors. With the economy poised for a recovery having contracted 7.3% in FY21, cyclical sectors such as financials, industrials and basic materials are likely to do well as the economic recovery picks up steam. However, given the uncertainty around the pandemic, it is best to stick to long-term asset allocation and invest the core of the portfolio into well-diversified funds avoiding excess concentration in a single sector/theme.

 

The bottomline…

Sectoral funds are not bad per se. But they are not suitable for most investors. Hence, it is best to avoid investing in sector funds when building long-term portfolio. These fund can really end up making a huge profit, if the timing of investment is accurate. Investors should know when to enter and exit the fund. Investors should invest in areas of the market where they are confident about or see growth in the future. The main idea is to tap-in on the growth of a particular industry and sector. Moreover, sector funds have the ability to protect investors from individual firm-specific risk. Rather than buying individual stocks, investing in sector funds would ensure that a company’s bad performance would not affect their portfolio. But, before investing in a sector mutual fund, they should be confident on why they believe that sector is likely to perform well in the near future. Since Sectoral Mutual Funds are equity funds i.e. they invest in stocks of companies, investors need to stay invested for at least 5 years. Sectoral Mutual Funds invest in equities, so in the short term, they can be volatile. However, over the long-term, the risk comes down substantially.

FUND FULCRUM

July 2021

SBI Mutual Fund has maintained its top position in the mutual fund rankings with 4% growth in AUM in the first quarter of FY 2022. The fund house managed Rs.5.23 lakh crore assets at the end of June 2021 compared to Rs.5.04 lakh crore at the end of March 2021, according to the latest AMFI data. In absolute terms, the AUM of the fund house rose by Rs 18,743 crore. The rankings of the top 10 fund houses also remained unchanged in the first quarter of the current financial year. In the top 10 list, DSP Mutual Fund registered the highest growth in AUM at 7% followed by Axis Mutual Fund at 6%. The AUM of the two fund houses zoomed by Rs 6,639 crore and Rs 11,593 crore, respectively. The impressive growth in AUM has helped both the fund houses reach new milestones. While DSP Mutual Fund's assets has crossed the Rs 1-lakh-crore mark, Axis Mutual Fund joined the 2-lakh-crore AUM club during the June 2021 quarter. Among the top 20 fund houses, Mirae Asset Mutual Fund was the biggest gainer in terms of rankings. With 12% growth in AUM, the fund house has climbed two positions to occupy the 11th rank in the list of mutual funds. The AUM of the fund house increased by Rs 8,076 crore to Rs 77,647 crore during the period. Tata Mutual Fund and Canara Robeco Mutual Fund rose one position each with 8% and 15% growth in AUM, respectively. Franklin Templeton Mutual Fund slipped three spots to the 14th rank as its AUM declined 27%. Quant Mutual Fund, ITI Mutual Fund, PPFAS Mutual Fund and PGIM India Mutual Fund were the biggest gainers in terms of AUM. In fact, Quant Mutual Fund more than doubled its AUM from Rs 722 crore to Rs 1,642 crore during the period. The fund house now occupies the 34th spot, up two positions from the previous quarter. According to the quarterly data, overall AUM of mutual funds rose 3% to 33 lakh crore from 32 lakh crore during the first quarter of FY 2022.

 

The mutual fund industry saw the number of investors doubling in a matter of 4 years and 3 months. As of June 30, 2021, there were 2.39 crore mutual fund investors as compared to 1.19 crore at the end of March 2017. The data captures the total number of unique PANs which includes both individual and corporate investors. The industry saw 12 lakh new investors joining the mutual fund bandwagon in the first quarter of FY 2022. The number is considerably higher when compared with the total investor addition of 20 lakh during the whole of FY 2021. This can be attributed to the continuous investor awareness campaigns and ease of investment due to digitization for the surge in investor count. Investors now recognize that in addition to providing steady investment performance, mutual funds are well-regulated, transparent and convenient. The stellar role played by distributors and advisors in making funds more accessible and the ‘Mutual Fund Sahi Hai’ campaign by AMFI have aided this momentum. The lockdown could have dampened the momentum last year, however, digital tools including steps such as facilitating e-KYC for registering new investors have made it easier to become a mutual fund investor. Fund houses have also played a significant role through various investor awareness efforts; for instance, the timely #DateyRaho campaign by IDFC MF encouraged many investors to stay the course. The investor awareness campaigns being run by distributors and fund houses have delivered results. AMFI's decision to rope in top cricketers like Sachin Tendulkar and MS Dhoni for its 'Mutual Fund Sahi Hai' campaign also played a major role in igniting interest of tier-II and tier-III investors in mutual funds. However, despite the surge, the total number of mutual fund investors remains low. Comparing the investor count with the total number of PAN cards (51 crore as of June 2020) shows that there is only one mutual fund investor for every 21 PAN card holders in India. 

 

AMFI data shows that the share of individual investors' assets in the mutual fund industry has risen to 53.8% in June 2021 from 50.5% in June 2020. The total assets of individual investors were Rs.18.34 lakh crore in June 2021 compared to Rs.13.18 lakh crore in June 2020. Individual investors include retail investors and HNIs. Meanwhile, institutional investors’ assets in the industry have fallen to 46.2% in June 2021 from 49.5% in June 2020. Institutional investors are mainly banks, insurance, pension funds and large corporates. The rise in individual investors’ assets can be attributed to the current boom in the equity market. The growth in individual assets is largely due to their exposure to equity funds and subsequent rally in the market. Moreover, the mutual fund industry has acquired many new investors over the last three months. Further analysis of the data shows equity schemes account for 88% of the total assets from individual investors. Similarly, debt schemes (62%), liquid schemes (85%) and ETFs, FoFs (90%) get majority of their assets from institutional players. Individual investors hold 72% of their assets in equity-oriented schemes while institutions hold 69% of their assets in liquid / money market schemes and debt-oriented schemes. Depleting asset quality in debt papers and instances of trouble in debt funds in the recent time have kept retail investors away from debt funds.

 

AMFI’s latest data shows that 16% of assets in the mutual fund industry has come from B30 cities amounting to Rs.5.56 lakh crore as on June 2021, rising from Rs.4.01 lakh crore in June 2020. Assets in T30 cities stood at Rs.28.54 lakh crore in June 2021. Further analysis of the data shows that a large chunk of the B30 assets is in equity oriented schemes. Of the total B30 AUM, 70% was from equity-oriented schemes while the remaining 30% belonged to debt schemes as on June 2021. Many people in B30 cities prefer equity funds as they have adequate exposure to debt schemes through bank FDs and pension funds. This ratio is reversed in T30 cities due to presence of institutions and corporate houses. Nearly 60% of the total T30 AUM is invested in debt schemes. Over 26% of the assets held by individual investors is from B30 location. Investors in these locations prefer investing in mutual funds through distributors. AMFI data shows that 86% of the total individual assets in B30 location has been in regular plan. SBI, ICICI Prudential and HDFC were the top three fund houses with highest assets in T30 location as on June 2021. SBI Mutual Fund has retained the top rank in T30 market share. The fund house has 79% of its total assets i.e. Rs. 4.24 lakh crore of the total Rs.5.38 lakh crore in top 30 location. ICICI Prudential Mutual Fund and HDFC Mutual Fund occupy the next two spots with assets of Rs. 3.63 lakh crore each. Aditya Birla Sun Life Mutual Fund and Kotak Mahindra Mutual Fund follow the top three fund houses with assets of Rs.2.39 lakh crore and Rs. 2.30 lakh crore, respectively in T30 location. The next five fund houses with the highest T30 market share were Nippon India Mutual Fund (Rs. 2.01 lakh crore), Axis Mutual Fund (Rs.  1.79 lakh crore), UTI Mutual Fund (Rs.  1.45 lakh crore), IDFC Mutual Fund (Rs.  1.18 lakh crore) and DSP Mutual Fund (Rs. 0.90 lakh crore). These findings are based on the review of monthly AAUM data published by fund houses. T30 refers to the top 30 geographical locations. The total assets of the top 25 fund houses was Rs. 33.68 lakh crore of which 84% i.e. 28.21 lakh crore was from T30 locations. Of these T30 assets, 36% was held in equity (Rs. 10.03 lakh crore) and 49% was debt (Rs. 13.72 lakh crore).

Piquant Parade

After the success of ‘Mutual Fund Sahi Hai’ campaign, the mutual fund industry should focus on inculcating the investing culture through advisors/MFDs by launching ‘Saarthi Zaroori Hai’ campaign, said a 14-point-action document prepared by Boston Consulting Group (BCG) and Confederation of Indian Industry (CII). As the industry has successfully imbibed the notion of ‘Mutual funds sahi hai’ among its investors, it now needs to inculcate the culture of ‘Saarthi zaroori hai’, according to the document. The document has urged the industry to build greater emphasis on role of advisors and expand their productivity and reach by leveraging technology. "The B30 segment offers a wide playfield that is still an untapped territory with low penetration. For expanding this market, all stakeholders – regulators, asset managers, distributors, investors – need to come together to continue with the existing incentive structure and take this business forward by mobilizing increased number of investors," according to the action document. It further stated that the industry needs to attract more people into the business of distribution, which can be done by campaigning within educational institutions and educating people about the profitable aspects of becoming a MFD. Citing a recent Boston Consulting Group (BCG) survey, the release said that 80% of urban consumers who bought mutual fund have digital footprint and 66% of them were influenced digitally during the purchase process. Mutual fund distributors and advisors can leverage this increase in acceptability of digital channels to improve efficiencies in their business model by unlocking significant time earlier spent on physical travel, physical form filling, manual tracking and reporting, etc. Other recommendations for the industry included simplification of offerings, using tech to drive efficiency of fund managers, strengthening internal risk management, communicating risk-return effectively to retail investors and leveraging new strategies to deliver enhanced performance.

 

As Indian investors are warming up to the idea of passive investing, many new and upcoming mutual fund players are planning to offer only passive funds to investors. Among the numerous fintechs and PMS firms in the process of starting mutual fund business, Zerodha and Angel Broking have confirmed that they will sell only passive schemes. While Zerodha is awaiting mutual fund license from SEBI, Angel Broking is in the advanced stage of applying for the regulator's approval. Zerodha said it sees opportunity for a pure passive AMC in India. Very few active managers have consistently added value. Having said that, at the end of the day most investors are not concerned about alpha. They are looking for simple, transparent and easy to understand products that can help them fulfill their long term goals like retirement. Angel Broking will be using the rule-based investment approach to offer smart passive products to investors. A combination of our smart beta funds and passive ETFs (Exchange Traded Funds) would cover the complete investment needs of any investor at far lower costs, enabling new customers to experience equity with ease. Passive investing has gained momentum in India in the last one year or so. There have been a plethora of index fund and ETF launches in recent months. NSE has 100 ETFs listed on its platform and 21 one of them were launched in the last one year alone. The AUM of index funds doubled in the last calendar year from Rs 7,944 crore to Rs 15,359 crore. In addition, the AUM of ETFs (excluding gold) rose 46% from Rs 1.75 lakh crore to Rs 2.57 lakh crore.

Regulatory Rigmarole

The concept of 'Accredited Investor' is now a reality in India. SEBI has approved the proposal to introduce a framework to bring the concept to the Indian securities market. Accredited investors are those investors who have a better understanding of risks and returns associated with financial products. These investors have a higher financial capacity and a greater ability to absorb loss. SEBI said individuals, HUFs, family trusts, sole proprietorships, partnership firms, trusts and corporates can become accredited investors. However, the regulator is yet to announce final parameters for qualifying as accredited investors. According to a consultation paper issued in February 2021, the regulator plans to give accredited investor tag to those investors who have annual income of at least Rs 2 crore. The move opens doors for financial service providers to introduce customized investment products for sophisticated clients. Such products would get relaxation in some of the norms set by SEBI. Among some key benefits to accredited investors are relaxation in minimum ticket size for such investors in AIFs and PMSs, relaxation in investment norms if minimum investment amount in AIF is Rs.70 crore or Rs.10 crores in PMS. Moreover, they can negotiate terms and conditions on fees and services from RIAs. Investors who want to qualify as accredited investors will have to get a license from accreditation agencies, which SEBI is yet to finalize. The regulator said it could allow subsidiaries of depositories and stock exchanges to become accreditation agencies.

 

AMFI has asked fund houses to include SIP and STP along with lump sum contribution to arrive at retail investment for additional TER. With this, the investment from clients will now be consolidated at fund level or PAN level to see if the investment is retail or non-retail to calculate additional TER for fund houses and incentive for MFDs. SEBI rules say that retail investors are those who invest up to Rs.2 lakh per transaction. AMCs can charge additional 30 bps applicable on B30 cities only on assets from retail investors. So far, many fund houses did not consolidate contribution at fund or PAN level to arrive at retail investment. For instance, if an investor has invested Rs.1.50 lakh through lump sum and Rs.1.50 lakh through STP, both the transactions have been treated separately and come under retail account for calculation of additional TER. In its best practices, AMFI said, “It has been brought to AMFI’s attention that some of the AMCs do not club the switch-in transaction for the purpose of determining threshold limit of Rs.2 lakh for additional TER in respect of mobilization from B30 cites, particularly in respect of switch-in transaction received during NFO. Consequently, such AMCs are charging additional B30 TER and paying additional B30 commission to the distributors.”

 

SEBI has done away with the existing norms on skin in the game in which fund houses have to invest 1% of the amount raised during NFO or Rs.50 lakh, whichever is lower. In fact, it has asked fund houses to invest based on risk level of the scheme. Prima facie, it looks like fund houses will have to invest more in riskier schemes like equity funds compared to less risky schemes like debt funds. However, SEBI is yet to clarify how the new skin in the game norms will be put in practice.

Swing pricing is adjustment of NAV such that if outflow is higher than pre-determined level, the NAV goes down for investors redeeming MF units. Similarly, the NAV price goes up if investors invest more than pre-determined level. Currently, swing pricing has two types – full swing and partial swing. While NAV is adjusted on every calculation day in full swing (applicable during market dislocation), partial swing is applicable only if a scheme witnesses high inflows/outflows on a given day compared to pre-determined level. Partial swing can be applicable on normal market scenario. SEBI hints to implement hybrid model which would be combination of both – full and partial swings. To start with, SEBI may introduce swing pricing mechanism in riskier debt schemes. The market regulator may look to extend such an option in equity funds at a later stage. AMCs can choose to levy higher swing factor and SEBI will determine ‘market dislocation’ after consultation with AMFI. Swing pricing helps fund houses to achieve fairness in treatment of entering and exiting investors. There will be no first move advantage i.e., investors redeeming earlier sensing market dislocation cannot benefit at the cost of other investors. It reduces risk of impact of high redemption pressure on scheme. If large and small investors redeem on a same day, the latter can get lower NAV. Swing pricing can address issue of heightened redemption pressure especially during volatile market conditions, protect investors from underperformance of a scheme due to significant outflows and lower daily NAV volatility.

 

India’s financial wealth has been growing since 2015. In fact, the financial wealth of India has grown by 11% per annum between 2015 and 2020 to reach $3.4 trillion and is to continue to grow by 10% per annum to $5.5 trillion by 2025, according to a report released by the Boston Consulting Group (BCG). The report reveals that India is expected to lead growth in financial assets in terms of percentage. Retirees, one of the world’s fastest-growing demographics, are an appealing market for wealth managers. Globally, individuals over 65 own $29.3 trillion in financial assets accessible to wealth managers. That figure will grow at a CAGR of close to 7% over the next five years. By 2050, 1.5 billion people globally will fall into the category above 65 years of age, representing an enormous source of wealth. Liabilities are expected to grow by 9.4% per annum to $1.3 trillion by 2025. Bond markets are expected to grow the fastest with 15.1% per annum. Life insurance and pensions will be the third largest asset class in the future. North America, Asia (excluding Japan), and Western Europe will be the leading generators of financial wealth globally, accounting for 87% of new financial wealth growth worldwide between now and 2025. China is on track to overtake the US as the country with the largest concentration of ultra HNIs by the end of the decade. The faces of the ultra HNIs are changing too, with the rise of the next-generation segment. These individuals, between 20 and 50 years of age, have longer investment horizons, a greater appetite for risk and often a desire to use their wealth to create positive societal impact as well as earn solid returns. Many wealth managers are not yet ready to serve these new ultra HNIs. High-growth markets represent a massive opportunity but wealth managers must build a genuine understanding of local differences and also key demographic changes. For example, women now account for 12% of ultra HNIs, most of whom are based in the US, Germany and China. The next generation segment is also going to be an influential driver of future growth in the next decade or so. Wealth managers should offer a personalized service in order to effectively capture the next wave of growth.

 NFONEST

July 2021

Five NFOs of various hues are open at present and find a place in the July 2021 GEMGAZE.   

Kotak Global Innovation Fund of Fund

Opens: July 8, 2021

Closes: July 22, 2021

Kotak Mutual Fund launched Kotak Global Innovation Fund of Fund, an open ended fund of fund investing in global stocks such as Amazon, Facebook, VISA, AstraZeneca, Netflix and so on. The primary investment objective of the scheme is to provide long-term capital appreciation by investing in units of Wellington Global Innovation Fund or any other similar overseas mutual fund schemes/ETFs. Being a Fund of Fund, this scheme will invest 95% of its assets in units of Wellington Global Innovation Fund and/or any other similar overseas mutual fund schemes/ ETFs. It will also invest up to 5% of its assets in debt and money market instruments in order to meet the liquidity requirement of the scheme. The underlying fund of the scheme is Wellington Global Innovation Fund. US based Wellington Management manages AUM of over US$ 1 trillion. The scheme will benchmark its performance to the MSCI All Country World Index TRI. The fund is managed by Mr. Arjun Khanna.

 

PGIM India Small Cap Fund

Opens: July 9, 2021

Closes: July 23, 2021

PGIM India Mutual Fund has launched PGIM India Small Cap Fund, an open-ended scheme which aims to achieve long-term capital appreciation by investing predominantly in small cap companies. PGIM India Mutual Fund’s performance will be benchmarked against Nifty Small Cap 100 TRI (Total Return Index). Mr. Aniruddha Naha is the equity fund manager for the scheme, Mr. Kumaresh Ramakrishnan is the debt fund manager for the scheme and Mr. Ravi Adukia will manage the overseas investments for the scheme.

Axis Floater Fund

Opens: July 12, 2021

Closes: July 26, 2021

Axis Mutual Fund has launched Axis Floater Fund, an open-ended fund predominantly investing in floating rate instruments and fixed rate instruments swapped for floating rate returns. The fund aims to navigate a possible rising interest rate environment. The fund will invest in a mix of high-quality instruments and AA issuers. It targets a portfolio average maturity of 6-18 months. The fund is suitable for investors looking to park short-term surplus funds or for those looking to limit the interest rate risks in their debt portfolio. Floating rate bond fund invests in floating rate bonds as and when the interest rate moves up. The idea is to offer the new adjusted rate which is higher than the existing papers to offer a higher interest. The scheme will benchmark its performance to the NIFTY Ultra Short Duration Debt Index. The fund is managed by Mr. Aditya Pagaria.

Tata Business Cycle Fund

Opens: July 16, 2021

Closes: July 30, 2021

Tata Mutual Fund has launched an open-ended equity scheme, Tata Business Cycle Fund. The scheme will follow business cycles-based investing theme. The investment objective of the fund is to generate long-term capital appreciation by investing with focus on riding business cycles through allocation between sectors and stocks at different stages of business cycles. Under normal circumstances, 80% to 100% of the fund’s portfolio will be invested in equity and equity related instruments selected on the basis of business cycle. The scheme will invest 0% to 20% of its assets in other equity and equity related instruments, up to 20% of its assets can be invested in debt, money market instruments and Gold ETFs and 0% to 10% of its net assets may also be invested in units issued by REITs and in VITs. Tata Business Cycle Fund’s performance will be benchmarked against Nifty 500 TRI (Total Return Index). The fund will be managed by Mr Rahul Singh (equity), Mr Murthy Nagarajan (debt), and Mr Venkat Samala (overseas).

 

Trust Short Term Fund

Opens: July 20, 2021

Closes: August 3, 2021

Trust Mutual Fund has launched its third fund, Trust Mutual Fund Short Term Fund, an open-ended liquid scheme, which aims to build a portfolio of the highest-rated issuers for investors to benefit from the persistent steepness in the Yield Curve in the 1 to 3-year segment. The fund will invest in top quality securities having AAA rating with maturity of up to three years. The objective of the scheme is to provide reasonable returns at a high level of safety and liquidity through investments in high quality debt and money market instruments. The fund will follow a structured investment approach backed by unique methodology, with the objective of delivering consistent risk-adjusted returns. The robust methodology has been developed in collaboration with CRISIL$, the knowledge partner for the initial debt schemes of TRUST Mutual Fund. The highlights of the fund include focus on consistent risk adjusted returns in back testing of Model Portfolio by CRISIL, quality investible universe of filtered AAA on issuers, steepiness in the yield curve combined with roll down opportunity providing an opportunity to generate capital gains and some cushion against yield increase and current curve far steeper than historical averages providing better opportunities. The scheme will benchmark its performance to the CRISIL Liquid Fund Index. The fund will be managed by Mr. Anand Nevatia.

 

Kotak Nifty 100 Low Volume 30 ETF Fund of Fund, Kotak Nifty Alpha 50 ETF Fund of Fund, UTI Nifty Midcap 150 Quality 50 Index Fund, ICICI Prudential S & P BSE 500 ETF FOF, ITI Pharma and Healthcare Fund, TRUSTMF Fixed Maturity Plan, ITI Focused Equity Fund, ITI Flexi Cap Fund, ITI Banking and Financial Services Fund, TRUSTMF Overnight Fund, Union Innovation Fund, Kotak Consumption ETF, Kotak Midcap 50 ETF, Kotak MNC ETF, DSP Global Innovation Fund of Fund, Aditya Birla Sun Life Nifty SDL Plus PSU Bond Sep 2026 Index and Aditya Birla Sun Life Business Cycle Fund are expected to be launched in the coming months.