(August 2009)
The average AUM of the Indian mutual fund industry stood at Rs 6,89,946.12 crore for July 2009, a rise of three per cent in the month, according to the Association of Mutual Funds in India. Providing a comprehensive overview of the industry, the AMFI report said the market is highly concentrated with the top seven asset management companies among the 38 fund houses controlling 70 per cent of the market. Private players have witnessed their market share rising to 30 per cent from three per cent between 2000 and 2008, while dominance of UTI and bank-sponsored Mutual Funds declined to only 18 per cent in 2008 from as much as 77 per cent in 2000. Despite a decline, the UTI and bank-sponsored funds have established a strong distribution network in Tier-2, -3 cities, and in the rural areas. This provides a unique opportunity for retail-focused asset management companies to either buy a stake or establish a relationship with these fund houses.
High Spirits…
AUM in the Indian mutual funds industry is estimated to grow at a compounded annual growth rate (CAGR) of 29 per cent in the next five years, according to the report by global consultancy Celent. The pace of growth in assets is expected to be higher in the years ahead as compared to the CAGR of 25 per cent witnessed in the 2004-2009 period. A very high household savings rate and low retail penetration make the market a target for foreign asset managers. However, the profitability of the industry is expected to remain at its present level mainly due to increasing cost incurred to develop distribution channels and falling margins due to greater competition among fund houses. Celent estimates the retail segment, which at present contributes just 37 per cent of the assets, to grow at a 35 per cent CAGR for the next five years, driven by rise in income and awareness of mutual fund products. Meanwhile, institutional investors dominate the market with contributions of 56 per cent in assets. The institutional segment will grow at a moderate 25 per cent CAGR in the same time period, driven mainly by lack of alternative liquidity management instruments. The institutional segment will be the volume driver for the industry, while the retail segment will drive profitability.
Piquant Parade
Singapore’s United Alliance Bank has formed an alliance with a unit of India’s UTI Asset Management to jointly launch and distribute mutual funds.
UTI AMC is on the lookout for another foreign partner to float its first-ever infrastructure-focused private equity fund since Shinsei Bank of Japan, with which it had signed a deal along with HSH Nord Bank of Gemany in 2007, has suffered heavy financial losses.
Promoters of Cholamanadalam DBS Finance are looking to sell stake in their loss-making mutual fund business, DBS Cholamandalam Asset Management. The promoters have sent feelers to select mutual funds and private equity funds. Religare Enterprises and South Korean fund house Mirae Asset are among the players who have been sounded out. The promoters of DBS Chola Finance - Chennai-based Murugappa group and Singapore’s DBS Bank - are weighing various options, including an outright sale of the mutual fund business or induction of a strategic or financial partner. DBS Cholamandalam Asset Management made a loss of Rs 38 cr for the year ended March 2009. The fund`s assets under management have shrunk in the last couple of years from over Rs 3800 cr in September 2007, when it first initiated the stake sale process, to around Rs 2700 cr in July 2009.
Deutsche Bank has launched Asia's first money market exchange-traded fund (ETF). The db x-trackers US Dollar Money Market ETF, which was first listed in London in April 2008, was cross-listed in Singapore and Hong Kong.
UTI Mutual Fund, along with National Institute of Securities Markets (NISM), has launched a training programme called “Building an Investment Advisory Business” for its financial advisors. With the advent of the new SEBI regulations on entry load from August 1, 2009, the role of financial advisors has become more advisory in nature rather than just pure distribution. To equip them with special skill sets like financial planning, time management, assessing risk appetite etc., UTI Mutual Fund along with NISM, has started this training programme for its financial advisors across the country.
The much-awaited online platform for mutual fund transactions has entered its final stages.
With a view to empanelling all the 38 fund houses under one roof, AMFI, under the direction of SEBI, has invited bidders for developing a mutual fund distribution platform. NSE, NSDL, CDSL and Cams-Karvy consortium have submitted their proposals to build the AMFI platform.
This online platform will give a consolidated view of your portfolio. Apart from increasing the penetration of mutual funds and facilitating easier transactions, this platform will save costs for the industry. It will have multiple modules for different users and access points and can also be accessed via mobile.
Government-run India Post, which sells schemes of Principal, SBI, UTI, Franklin Templeton, and Reliance Mutual Fund through designated post offices in India, will no longer distribute mutual fund schemes through its designated post offices due to the ban on entry load on mutual funds.
UTI Mutual Fund has informed its investors that they can submit their purchase/redemption requests at the new UTI Financial Centre (UFC) at Ambala (Haryana) with effect from July 15, 2009, in addition to the existing official points of acceptance.
Driven by a scintillating performance, Reliance Mutual Fund is the most successful fund house in India in the quarter ended June, 2009 according to CRISIL Fund Services (Composite Performance Ranking (CRISIL –CPR).
JPMorgan Asset Management India Pvt. Ltd. launched the first Investment Confidence Index in India in association with ValueNotes. The J.P. Morgan Asset Management – ValueNotes Investment Confidence Index (ICI), which will be published on a quarterly basis, captures the confidence of retail investors, corporate investors, and financial advisors on the Indian economic and investment environment. The findings of the inaugural survey show that the Indian financial community currently holds a cautiously optimistic view towards their local market.
Regulatory Rigmarole
Securities Exchange Board of India (SEBI) announced the game changer policy of `No entry load` on all mutual funds from August 1, 2009. This step is aimed at driving more transparency and service orientation from the advisors.
Exit load is to be uniform across-the-board w.e.f August 24, 2009 and can be imposed for exit by investors upto one year. SEBI has stipulated that of the exit load or CDSC charged to the investor, a maximum of 1 per cent of the redemption proceeds should be maintained in a separate account, which could be used by the AMC to pay commissions to the distributors and to take care of the marketing and selling expenses, and any balance should be credited to the scheme immediately.
In accordance with SEBI letter dated June 19, 2009 addressed to AMFI and subsequent guidelines issued by AMFI in this regard, investments through SIPs up to Rs 50,000 per year per investor shall be exempted from the requirement of PAN, with effect from August 1, 2009. The exemption shall be applicable for SIPs where aggregate of investments in a rolling 12 months period or in a financial year i.e. April to March does not exceed Rs 50,000.
With effect from August 10, 2009, mutual funds will have to disclose inter scheme transfers of corporate bonds on stock exchanges where they are traded on a daily basis. Earlier, mutual funds used to disclose this data once in six months. Compliance department of most fund houses had already asked fund managers to curb inter scheme transfers.
…to Low Spirits…
According to a McKinsey and Company report, the mutual fund industry is expected to see consolidation earlier than expected as many new entrants may not be able to withstand the financial stress arising from the rising expenses and the importance for organized channels for distribution. The profits of both distributors as well as the AMCs are expected to be under pressure as a result of the removal of entry load by SEBI. PMS and alternate avenues are expected to grow as the HNIs thrive and the AMCs/distributors push high margin products. With AMCs attempting to keep the turnover ratio to its minimum, it is expected that the number of closed-end funds will increase. Banks and national distributors are better positioned to charge customers in view of their better control over customer wallets across multiple products in addition to the wealth management platform. This may signal a transition from transaction-led pricing to advisory-led pricing model. Transaction-led pricing will continue to rule the roost in the case of retail investors. Only the bigger IFAs will be able to charge customers. Smaller IFAs will have to bear the brunt of the recent regulatory changes since they act as transaction intermediaries rather than investment advisors.
“Buy low and sell high” is a lesson mutual fund investors in India continue to ignore, as trends in money flows into mutual funds over the past two years show. Flush with funds in a rising stock market until early 2008, equity funds saw new inflows dwindle in the bear market, reviving only in the recent rally, the best stock market performance in 17 years. According to the RBI Annual Report, over four lakh systematic investment plan (SIP) accounts, nearly 10% of the SIP accounts with the Indian mutual fund industry, have been closed during the recent bear market. The AUM in the financial year 2008-2009 saw a decline of 17% compared to year-on-year growth of approximately 50% from 2003 to 2008. But, the rally that followed has kept the spirits of the Indian mutual fund industry going…volatility is the name of the game!
