FUND FULCRUM - MARCH 2008

Fund Fulcrum
(March 2008)

A McKinsey report titled, “Indian Asset Management: Achieving Broad-based Growth” says institutional investments in Indian mutual funds may witness 25-33 per cent annual growth, with total assets under management increasing from $42 billion in 2007 to $160 billion by 2012. The retail segment could grow at a compounded annual growth rate of 36–42 per cent annually, taking the total AUM from US$36 billion in 2007 to $160–$200 billion in 2012. The total investment in Indian mutual funds is, therefore, expected to be around $350-440 billion by 2012.

According to data available with the Association of Mutual Funds in India, the combined Assets Under Management of the 32 fund houses jumped to Rs 5,65,469.53 crore at the end of February this year, compared to Rs 5,48,063.51 crore till January. Reliance Mutual Fund maintained its top position with AUM of Rs 93,531.67 crore for February compared to Rs 77,210.03 crore in January, adding Rs 16,321.64 crore during the month. ICICI Prudential Mutual Fund is the second largest fund house, despite recording a decline of Rs 4,767.42 crore in its AUM. At the end of February, ICICI Prudential's AUM stood at Rs 59,277 crore against Rs 64,045 crore in the previous month. State-run UTI Mutual Fund also suffered a dip in its assets in February, which stood at Rs 52,464.71 crore compared to Rs 52, 656.19 crore in the previous period. The other two fund houses among the top five, HDFC Mutual Fund and Franklin Templeton have AUM worth Rs 46,291.97 crore and Rs 29,901.69 crore, respectively in February.

Birla Sun Life Asset Management Company has been crowned the Mutual Fund of the Year, at the annual CNBC TV 18 - CRISIL Mutual Fund awards function, powered by the rating agency CRISIL. This particular award recognizes the fund house for its performance and consistency in wealth creation, across all schemes offered by the fund house. The fund house received 6 awards in total; three debt schemes, two equity schemes and the most coveted Mutual Fund of the Year award. These CNBC TV 18-CRISIL awards come in the wake of the 2 awards won by Birla Mutual Fund at the recent ICRA Fund Awards. Recognition of the fund house’s performance has not been restricted to the shores of India. Lipper, the international rating agency, also bestowed 4 awards on Birla Sun Life Mutual Fund, including one wherein their Tax Fund was adjudged the 3rd best performing equity fund in the world, and the best in India, over a 10-year horizon.

Piquant Parade

CRISIL has assigned a CRISIL IPO Grade "4/5" to the proposed initial public offer of UTI Asset Management Company Ltd. This grade indicates that the fundamentals of the issue are above average relative to other listed equity securities in India.

United Bank of India (UBI) is tying up with Kotak Mahindra to sell mutual funds. UBI currently has tie-ups with five asset management companies, including UTI, HDFC, Franklin Templeton, Reliance and ICICI Prudential for selling mutual fund schemes. In addition to mutual funds, UBI is also selling insurance policies as part of its drive to boost non-interest income. Selling mutual funds and insurance policies through third-party companies constitutes UBI’s non-traditional non-interest income. Currently, UBI’s business from mutual fund and insurance schemes is estimated to be around Rs 14.5 crore, which is about 5% of total non-interest income. However, the bank will focus on its mutual fund businesses in the coming days with greater vigour.

Infrastructure Development Finance Corporation (IDFC) will buy Standard Chartered Mutual Fund. IDFC will pay $205 million (Rs 830 crore), way above $135 million (Rs 542 crore), the amount offered by UBS for the AMC in January last year. Standard Chartered has agreed to sell Standard Chartered Trustee and Standard Chartered Asset Management, including the local minority shareholders. The UK major has a 74.9% stake in the AMC with the remaining being held by Atul Choksey, the former co-founder of Asian Paints. The consideration is before deductions of local taxes and deal expenses. The two acquired companies represent the mutual fund business of Standard Chartered PLC in India. At the above price, the fund house is valued at 6 per cent of its total assets and about 20 per cent of its equity assets under management. The transaction is subject to regulatory approvals, which are expected to be completed by the second quarter of 2008.

Fortune 500 firm Indian Oil’s proposed strategy to invest its surplus funds estimated at Rs 35,000 crore for current fiscal — is restricted to only big equity-linked mutual fund schemes of minimum Rs 500 crore. However, the IOC board may enhance the limit subject to investments in equity-oriented schemes not exceeding 30% of surplus funds of longer tenure. The company plans to invest only its long-term (minimum one year) surplus funds in equity-oriented Mutual Fund schemes. However, the company has not proposed any such restrictions for debt-oriented MF schemes. IOC’s proposed policy on investment of its surplus in Mutual Funds would be effective after the approval of the petroleum ministry. In August 2007, the government had allowed navratnas and mini-ratnas to invest their surplus funds in debt and equity-oriented schemes of Sebi-regulated public sector Mutual Funds. Earlier, PSUs could invest their surplus in debt-based units of UTI only. As per revised guidelines, IOC can have option to invest Mutual Funds of UTI, SBI, LIC, GIC, BoB, Canara Bank and PNB.

Consultancy firm Mercer plans to offer advisory services on Indian fund managers and investments. The firm has appointed two analysts and expects to hire four more this year to track India's fund industry and will roll out the service by May. Mercer already provided intelligence on emerging market managers. Going forward, the firm would also advise Indian clients on overseas managers. Mercer, which is involved in consulting, outsourcing and investment services, is a subsidiary of Marsh & McLennan Cos Inc.

To be continued…