FUND FULCRUM
(September 2008)

The domestic mutual fund industry appears to be reeling under the impact of the global financial turmoil that has so far swallowed three iconic US firms and is threatening the stability of many more. The frantic rescue by the Federal Reserve has kept the bombardment of the US and global financial system at bay, at least for the time being…

According to AMFI, while the Indian mutual fund industry has been growing at 50–60% per annum in the last couple of years, the first quarter of fiscal 2008-2009 witnessed a deceleration in the growth of AUM of mutual funds. With equity markets across the globe in doldrums, the equity quotient of mutual fund schemes has plunged sharply. In March 2006, equity assets constituted nearly 40% of the total assets under management by mutual fund houses. That figure has shrunk to 26% last month. This loss of equity, however, has been more than compensated by the debt component, which has gone up substantially from 26% in March 2006 to around 50% in August 2008. The last time debt happened to take up nearly half of the total share of the mutual fund AUM was in December 2003 when its share was nearly 51%. It is not the income or liquid funds but the FMPs that seem to be catching up in light of volatility in the equity market. While there has been a fall of 25 per cent in the total assets managed by mutual funds from December 2007 to July 2008, the industry's total cash, with respect to assets under management, has increased from 5 per cent to 11 per cent (Rs.12000 crores) during the same period.

After witnessing a decline for two months in a row, the mutual fund industry has witnessed nearly three per cent rise in its asset under management in August. The combined AUM of the 35 fund houses in the country increased to Rs 5,44,317 crores at the end of August, as compared to Rs 5,29,629 crores in July. Reliance Mutual retained its position as the largest fund house in terms of assets under management and has grown its assets by 5 per cent to Rs 88,616 crore and its SIP has crossed the one-million mark. HDFC Mutual Fund has replaced ICICI Prudential as the second largest fund house with total assets of Rs 53,859 crore with a 6% growth from July. ICICI Prudential slipped from second to third position as it shed nearly 4% of its assets. Its AUM in August end was Rs 53,093 crore. UTI Mutual Fund has retained its position as the fourth largest fund house with its asset at Rs 46,947, even though it added Rs 827 crore in August. Other notable changes this month was 13% AUM growth of Franklin Templeton which grew by Rs 3276 crore. AUM of Benchmark Mutual was up 29% to Rs 3826 crore. Bharti AXA the new entrant grew its assets to Rs 408 crore adding Rs 180 crore in August. AUM of Taurus Mutual was up 30% as it added Rs 85 crore in August.

Piquant Parade

Over the next few months, the number of mutual fund companies operating in India is set to go up sharply. Right now, there are 35 fund companies that are operating in this country. In another few months, there are as many as 20 new ones that are likely to start, bringing the total up to 55. Goldman Sachs Asset Management has received an approval from SEBI to start mutual fund business in India. Motilal Oswal recently got an in-principle approval for its AMC. Some players like Axis Bank, Future Finance Ltd, Peerless General Finance & Investment Ltd. Etc. have applied for mutual fund license. Others in the fray include Axis Bank, Peerless, Jaypee, DLF, Union Bank, India Bulls, Religare, Schroder Investment Management of Singapore, PGLH of Delaware, Shinsei Bank of Japan and India’s Ambit, which has tied up with Nikko for a joint venture in the mutual fund business. Incidentally, DLF is planning to enter this business in a joint venture with Primerica, which is owned by Citibank.

The asset management business of DSP Merrill Lynch (Merrill Lynch is one of the iconic US firms that was sold to Bank of America) will be combined with BlackRock and named as DSP BlackRock Mutual Fund. BlackRock is a UK based group, which is a premier provider of global investment management, risk management and advisory services to institutional and retail clients around the world. The 40 per cent stake in the fund management business of DSP Mutual Fund will be transferred to BlackRock, while its 60 per cent stake will be held by the DSP Group. The stake transfer to BlackRock is awaiting regulatory nod.

UTI Mutual Fund is planning to rope in strategic investors without diluting the majority stake of its promoters, SBI, Bank of Baroda, Punjab National Bank and LIC. Specified Undertaking of UTI (SUUTI) is being wound up by 31 March, 2009. Till now, 15 lakh investors have redeemed Rs 21,000 crore. 2008 has seen the redemption of Rs 6800 crore in favour of 11 lakh investors. SUUTI was formed well over four years ago after the erstwhile UTI Mutual Fund was bifurcated into two in 2003-04, following a major crisis. All the schemes run by UTI based on the net asset value (NAV) were transferred to the UTI AMC while the assured return schemes and other assets and liabilities were transferred to a new undertaking, SUUTI, the objective being that once all the liabilities to the untiholders were extinguished, the undertaking could be wound up.

Punjab National Bank (PNB) is exiting its mutual fund business. PNB is asking for Rs 1.80bn for its 30% stake in the venture, valuing the AMC at Rs 6bn. However, Principal has valued it at around Rs 5bn.

SBI Mutual Fund has formalised its tie-up with Karur Vysya Bank , a leading private sector bank in Tamilnadu. The customers of Karur Vysya Bank would now be offered mutual fund investment products of SBI Mutual Fund. The tie up with Karur Vyasa Bank is a part of the effort to expand reach to the semi urban and rural investors. Karur Vysya Bank has tied up with Birla Sunlife Mutual Fund, Sundaram BNP Paribas, Reliance Mutual Fund and SBI Mutual Fund for distribution of their products.

Andhra Bank will be cross selling mutual fund products of the Reliance Asset Management Company and Kotak Mahindra Asset Management Company.

Taurus Mutual Fund has entered into a product distribution tie up with Bajaj Allianz Financial Distributors for distributing all products of Taurus Fund through its 5500 strong agency force.

Peerless General Finance and Investment has forayed into mutual fund distribution business, under Peerless Smart Money. The company has identified and empanelled three asset management companies - Tata, Sundaram and ICICI.

Reliance Mutual Fund has been accorded Superbrand status in the 2nd edition of Business Superbrands for the year 2008 on the criteria of market dominance, longevity, goodwill and customer loyalty.

ICICI Prudential AMC has launched ‘I-Pru Mobile’, an innovative mobile-based service that provides 24X7 access to investors invested in ICICI Prudential AMC schemes and empowers investors in their decision making process with easy to use investment calculators. Investors can now check portfolio values, view historical transaction details, get instant access to advisors and ICICI Prudential AMC branches. Even distributors can download and use the calculators during their sales calls for demonstration and explanation.

Fidelity Anywhere is a VeriSign secured (SSL certificates), mobile-friendly web site launched by Fidelity`s domestic asset management company in India. The Fidelity Anywhere service is free and available across all telecom operators in India. Investors who are registered for Fidelity`s online service can use the same login credentials and PIN / password to access their accounts on mobile phones with internet browsers and GPRS connectivity. The enhanced functionality allows investors to login and monitor their Fidelity account investments in all linked folios, including latest valuations of each scheme, monitor the last 5 transactions folio wise, whether completed / pending / rejected transactions, view their holding status and investor names, e.g. single or joint holding. They can request an account statement via email. The statement will be sent to the investor`s email ID that is registered with Fidelity. Another new feature allows visitors to Fidelity Anywhere to view stock market movements, of both the BSE and NSE, with a 15-minute delay. This feature is available without investors having to login. It provides the latest NAVs for Fidelity`s funds in India and allows its customers there to request application forms and investor guides which are then delivered via email.

(to be continued…)