FUND FULCRUM - FEBRUARY 2008

Fund Fulcrum

(February 2008)

Mutual Funds weather market meltdown to sustain their asset base, with a paltry decline of 0.15 per cent as against a 13-per cent drop in the sensex in January 2008. The total assets under management (AUM) stands at Rs 5,49,114.82 crore as on January 31, 2008 as against Rs 5,49,942.02 crore as on December 31, 2007, according to the data released by the AMFI. Almost all the leading fund houses, except ICICI Prudential, witnessed a drop of Rs 3,000-5,000 crore in their assets led by Reliance Mutual Fund and UTI Mutual Fund. Reliance Mutual Fund maintained its top position, with an AUM of Rs 77,210.03 crore (Rs 80,779.83 crore in December 2007). ICICI Prudential regained the second slot, replacing UTI AMC. The asset base of ICICI Prudential Mutual Fund grew 12.8 per cent in January 2008, to Rs 64,045.07 crore (Rs 56,772.58 crore in December 2007). Assets under management of UTI AMC fell by 7.3 per cent during January, 2008 as they closed at Rs 52,656.19 crore. Lotus India Asset Management has crossed Rs.10000 cr of AUM as on January 31, 2008 from a meagre Rs. 900 cr as on November 30th 2007 - a growth exceeding 1000%, making it one of the fastest growing fund houses during this period.

Piquant Parade

Franklin Resources, Inc. (operating as Franklin Templeton Investments), USA, has announced the acquisition of a 49% stake in Vietcombank Fund Management, an investment management firm currently focused on private equity investment in Vietnam. Approximately 9% of Franklin Templeton’s assets under management are currently from investors in the Asia Pacific region and Vietnam will be a key area of focus in expanding the company’s penetration in Asia.

Around seven suitors are in the fray, for acquiring Standard Chartered Mutual Fund including Credit Agricole, Shinsei, IDFC, Fortis, Aviva, Mirae, a US fund major and a Middle East player. The deal is valued at USD 200 million, up from USD 120 million that UBS was willing to pay last year and is expected to conclude as early as next month.

Punjab National Bank and Vijaya Bank are exiting their joint ventures with US-based Principal Financial Group.

Distribution arrangements have been entered into by DSP Merrill Lynch Fund Managers and Oriental Bank of Commerce, Franklin Templeton Mutual Fund and State Bank of Travancore and Principal PNB AMC and Triveni Kshetriya Gramin Bank.

Indiabulls Financial Services Ltd has got approval from SEBI to start mutual fund operations. The company is in the process of setting up an asset management company and a trustee company.

Religare Aegon Asset Management Company plans to launch its funds platform by September, 2008. Equity funds would be first in the line followed by debt products.

The trend of AMCs going public is catching up in India. UTI AMC, the country's second largest mutual fund is planning to float a $ 500 million public issue. HDFC Mutual Fund will be the second AMC to get listed on the bourses later this calendar year.

Global funds, including two Indian funds, one from Kotak and the other from Fidelity, are tapping the large Australian retail investor base of 25 million people to invest in the Indian stock market, which has grown by more than 40% annually in the last three years.

Bajaj Capital together with OptiMix, a division of ING Investment Management, has launched a new product by the name ‘myWrap Account’- the country’s first ‘no entry load’ facility for investing in mutual funds through a mutual fund distribution house. This is like a PMS of mutual funds where investors would invest in a PMS and this PMS would invest in several mutual funds on behalf of the investors. Three product options - capital growth, high capital growth and all equity, with the flexibility to shift from one option to the other at zero switching cost are provided. Besides exit charges, there will be fees such as annual management fee of 1.6 per cent.

Regulatory Rigmarole

C B Bhave has taken over the position as Chairman of SEBI from Mr. Damodaran. Indian market regulator, Securities and Exchange Board of India (SEBI) has entered into an agreement with its French counterpart Autorite des Marches Financiers (AMF) to understand each others regulatory regime and share information to bring about greater transparency in the capital markets of the two countries. The agreement follows a similar arrangement that SEBI entered into with the US SEC in early January.

The SEBI board approved removal of initial issue expenses for close-ended mutual funds. Entry load not charged on the close ended schemes would be applicable now. Waiver of load for direct applicants will also be available in close-ended schemes. SEBI approved regulations for the public issue of securitised debt instruments (SDI). It has also decided to provide for permanent registration of intermediaries. However, this does not apply to FIIs and venture capital firms.

Paving the way for investing a part of around Rs 4,500-crore retirement money of government staff in capital markets, interim pension regulator PFRDA expects the Centre and 19 states to transfer the money under New Pension Scheme (NPS) to three fund managers by April 1, 2008. If this happens, PFRDA hopes to operationalise the NPS by June 1, including the keeping of records by the National Securities Depository Limited (NSDL).

The Securities and Exchange Board of India has sought to caution investors with regard to investing in Art Funds, funds/schemes launched by companies formed for the purpose. At the same time, SEBI has threatened actions, civil and criminal, against such funds / companies and warned against launching of “Art Funds” or schemes without registration.

Awards and accolades pour in…..

ICRA felicitated top performing mutual funds based on quantitative parameters. Reliance Diversified Power Sector Fund grabbed two titles under Open-ended Diversified Equity Fund - aggressive, for one year and three year based performance. Under the defensive category, Standard Chartered Premier Equity got the best performing open-ended fund based on one-year performance and SBI Magnum Sector Funds Umbrella - Contra Fund for three year performance. Under the sectoral categories, Reliance Media & Entertainment Fund and ICICI Prudential FMCG Fund were awarded for one year and three-year performance, respectively. The award for the Best fund house for the year for equity went to Reliance while ICICI got the award in the debt category.

Birla Sun Life Tax Relief 96 was adjudged one of the best funds across the globe by Lipper, a Reuters group company, out of a universe of 6,302 funds. This is the only Indian fund in the top 3. Four others, namely, Birla Sun Life Basic Industries Fund-Growth, Birla Midcap Fund-Growth, Birla Sun Life Tax Relief 96 (1 year horizon) and Birla Infrastructure Fund-Plan B Growth all figure in the list of top 100 global funds (universe of 24,887 funds).

…and place the Indian Funds and the industry on a pedestal befitting their performance!