FUND FULCRUM - AUGUST 2008

Fund Fulcrum
(August 2008)

Mutual Fund AUM fell by 6.2% even as the market indices rose by 13% in July, 2008. The Average Assets Under Management of mutual funds dipped for the second month in a row from Rs.6,00,266.32 crore in May 2008 to Rs.5,64,752.75 crore in June 2008 and Rs.5,29,340.68 crore in July 2008. The dip in the overall fund flow was due to a hike in the interest rates and a steep fall in the amounts raised by NFOs. While NFO mobilisation was Rs.4331 crore in March 2008, it dropped to a paltry Rs.15 crore in July 2008.

Though Reliance maintained its leadership position, with assets valued at Rs.84,563.91 crore, it was the worst hit with a 6.9% fall in its AUM in July, 2008. ICICI Prudential Mutual Fund, the second largest mutual fund, witnessed a fall in AUM of Rs.4313 crore to Rs.55,160.66 crore. HDFC Mutual Fund, the third largest fund, with an AUM of Rs.50,752.03 crore, was the least affected with a 3.4% fall in July, 2008. It beat UTI Mutual Fund to secure the third spot.

Piquant Parade

With SEBI approving the joint venture between Bank of Baroda and Pioneer Investments, Bank of Baroda Mutual Fund will now be known as Baroda Pioneer Mutual Fund.

Bank of India is set to foray into the mutual fund business by setting up a separate subsidiary and entering into an agreement with a foreign partner. Spanish mutual funds major, BBVA, is reportedly said to be in talks with the bank.

PNB is in advanced discussions with US based Principal Financial Services for selling its stake in the AMC. PNB is divesting 30% stake in PNB Asset Management Company. PNB is asking for Rs.1.8 billion, valuing the AMC at Rs.6 billion as against Principal’s valuation of Rs.5 billion.

Principal Mutual Fund has entered into an alliance with Shamrao Vital Co-operative Bank Ltd. for the distribution of its products through the bank’s network.

SBI Mutual Fund has tied up with United Bank of India for selling its Mutual fund products through the bank’s branches.

Multiple fund managers - SBI, HSBC AMC, ICICI AMC and Reliance Capital - will commence management of over Rs.30,000 crore annual accretions in retirement funds in Employee Provident Fund from 1 September, 2008 itself as against 1 April, 2009, as earlier stated. This is expected to ensure better payout for investors.

AMFI has initiated a study to form common online platform, which would facilitate investors and distributors in mutual fund transactions. AMFI is also looking to simplify the application process of different mutual funds by introducing a common application form for all AMCs. The application forms should also categorically mention the amounts of commission to be paid for different services. This would ensure transparency and investor involvement in commissioning.

Fidelity Advisor’s Institute, an initiative of Fidelity Funds Network, conducted a free training programme from August 21 to 22, 2008 for those planning to take the AMFI Certification test.

Regulatory Rigmarole

From April 2009 onwards, non-government Provident Funds, Pension Funds and Gratuity Funds will be able to invest upto 15% in equity. Only those stocks that are on the NSE or BSE’s Derivatives list are eligible. The government has permitted the merger of Central government securities, State government securities and units of gilt Mutual funds into a single category and 55% of investible surplus is allowed as investment in this category.

Indian Mutual Fund Houses may soon get to sell insurance cover. The current regulations bar fund houses from collecting any premium from investors. Currently fund houses have to tie up with insurance companies to offer insurance cover. Only two fund houses, Reliance Mutual Fund and Birla Sunlife Mutual Fund, offer SIP products with an insurance cover now. In these cases, the insurance premium is being paid by the two fund houses.

The AUM of the Indian mutual fund industry could expect a moderate slowdown and drop below Rs.5 lakh crore by March 2009, according to the PHD Chamber. This can be attributed to a combination of factors such as uncertainty in the capital market, inflationary pressures and bleak prospects in the revival of the economy. At the same time, the PHD Chamber Analysis forecasts an AUM of Rs.15.6 lakh crore by 2012-13, powered by strong economic growth and better distribution. This is more than double the current AUM. So, while a short-term dip is imminent, the rosy picture painted in the long-term keeps investors going!