FUND FULCRUM
(December 2009)

The mutual fund industry hits another milestone, crossing Rs 8 lakh crore in asset under management in the month of November 2009. The average asset under management currently stands at Rs 8.07 lakh crore which is about 6% jump from October 2009 and 100% jump over the AUM in November 2008. 2009 has been a great year for the industry – the AUM rose from Rs 6 lakh crore in May to Rs 7 lakh crore in August and now 8 lakh crore in November.

According to the latest statistics from AMFI, the AUM of top fund houses has increased by two to 10 per cent. HDFC Mutual Fund has emerged as the fastest growing fund house in November among the top players, registering a growth of 9.73 per cent. With its AUM crossing Rs 1 lakh crore, HDFC has joined Reliance Mutual Fund in managing an AUM of over this landmark level. The AUM of Reliance Mutual Fund for November stood at Rs 122,252.42 crore, up 4.7 per cent against the previous month’s AUM of Rs 116,781.9 crore. The AUM of Birla Sunlife Mutual Fund grew 7.04 per cent to Rs 69,631.9 crore, whereas the assets of UTI Mutual Fund in November jumped by four per cent to Rs 76,847.3 crore. ICICI Prudential Mutual Fund was the slowest in adding assets in November among its peers. Its AUM rose only two per cent to Rs 82,138 crore. Some other fund houses which saw an increase in their average AUM in November include Benchmark Mutual Fund, Shinsei Mutual Fund, Tata Mutual Fund, Kotak Mahindra Mutual Fund, and Deutsche Mutual Fund. Fidelity Mutual Fund, Religare Mutual Fund, and LIC Mutual Fund which recorded fall in their average assets in October 2009, have witnessed a rise in AAUM for November 2009. AAUM of Baroda Pioneer Mutual Fund, ING Mutual Fund and JP Morgan Mutual Fund declined, 11.38%, 8.83%, and 8.37% respectively in the month of November.

Mutual Fund assets grew primarily on account of continuous inflows into Ultra short term debt funds. Mark to market gains in equity funds also contributed to asset gains to some extent. Banks were among the key investors and held a fifth of the industry AUM. However, equity funds continued to bear the brunt of outflows for the fourth month in a row. These outflows were on three counts - profit booking, lower sales as a result of lower distributor interest in selling equity funds following the SEBI ban on entry loads post August 1, 2009, and lack of new fund offers. Equity scheme purchases have dropped by over 50 per cent from Rs 9,000 crore levels in July to about Rs 4,500 crore in November inspite of the scintillating performance by the equity markets.

Piquant Parade

Of the 39 existing players in the mutual fund space, the top 10 account for 82 per cent of the total assets under management as of November 30, 2009, according to data by the Association of Mutual Funds of India. The five largest fund houses — Reliance Mutual Fund, HDFC Mutual Fund, ICICI Prudential, UTI Mutual Fund and Birla Sun Life — manage 57 per cent of the industry’s total AUM. The mutual fund industry in India, with 39 AMCs at present, is set to grow bigger.


The 53-year-old Peerless General Finance & Investment Company (PGFI) has received the green signal from SEBI to launch its own AMC. It will become the first east India-based AMC. The company is in a reasonable state of launch preparedness. PGFI already distributes products of AMCs such as ICICI Prudential AMC, Tata Asset Management, SBI Funds Management, Reliance Capital Asset Management, and Sundaram BNP Paribas AMC, apart from servicing various insurers.

Axis Bank was the newest entrant to the industry, to be followed by PGFI, and there are nine others waiting in the wings, in different stages of getting into the AMC space or have announced intentions of initiating an AMC. Those wanting to enter the AMC space are Bank of India, IDBI Bank, Mahindra & Mahindra Financial Services, SREI Infrastructure Finance, Bajaj Allianz, Indiabulls Financial Services, L&T Finance and Motilal Oswal, while India Infoline and Union Bank of India have announced their plans of initiating an AMC. Since mutual funds have reached a good level of penetration in the urban market, the only way to go is semi-urban and rural. There is good opportunity there since a bulk of bank deposits come from rural India. Entering a crowded space where big players account for a disproportionately large chunk of the market, new mutual funds are setting their sights on the hitherto ignored semi-urban and rural markets.

Quantum Mutual Fund, India's first direct to investor mutual fund, has increased its reach to 212 Karvy centres across the country. As a result of this initiative, investors located across the country will be able to avail of information regarding Quantum Mutual Fund’s products and submit their applications at these 212 service centres. These centres cover all major cities and Tier II towns.

Dena Bank and Shinsei Asset Management have announced a distribution tie-up. The extensive network of nearly 1,100 Dena Bank branches across India would allow Shinsei an opportunity to reach out to a wider base of investors, besides increasing business opportunities for Dena Bank.

Shinsei AMC that had launched its funds in July 2009 may see one of its stake holders exiting. Shinsei Bank, which holds 70% of the AMC business in India, is looking to move out and is in talks with Daiwa, another financial services player. The other stake holders in Shinsei AMC are Rakesh Jhunjhunwala who owns about 15%, and Sanjay Sachdev who holds about 10%. Right now they are in talks with Daiwa Securities which is a Japanese financial firm.

The two premier stock exchanges have launched the mutual fund buying and selling platform - NSE Mutual Fund Service System (MFSS) and BSE Star Mutual Fund platform. The NSE has started with UTI Mutual Fund and has been joined by four other funds. The NSE depends on NEAT technology to power its MFSS. The BSE Star Mutual Fund is a web-based access programme, which can be accessed by brokers outside the reach of the BSE network. Both the platforms will facilitate purchase and redemption of mutual fund units by investors through any NSE or BSE brokers and sub-brokers across its network. Though stock exchanges provide an easy route for mutual fund investors to buy and sell schemes, it will be an expensive proposition for investors who do not have demat accounts and those who frequently churn their portfolios.

Managing mutual funds is all set to be a simpler task with top AMCs deciding to go mobile with their offerings. A host of fund houses are in the process of setting up ‘mobile digital platforms’ which will allow investors to purchase, redeem, or switch their portfolios using a simple Java-enabled cell-phone. The setting up of mobile digital platforms is seen as a method to bring investors closer to asset management companies by eliminating the extra layer of local distributors and stock brokers. HDFC Mutual Fund has already set up a cell phone platform for its investors, and top fund houses like Reliance Mutual Fund, Bharti Axa Investment Managers, UTI Mutual and ICICI Prudential Mutual are at various stages of structuring the mobile platform. Broad requirements for using a ‘mobile digital platform’ includes a java-enabled cell phone (priced above Rs 3,000 in India), an existing folio with the fund house (which negates the need for KYC while buying funds through cell phones), a net-banking option, a fund house-allotted PIN, a link-up with a mobile payment vendor like Ngpay, Obopay or Meramobi and permanent account number (PAN).

CAMS & KARVY, the two largest Registrar and Transfer Agents of the mutual fund industry, have joined hands to launch ‘FINNET’, “an all in one engine’ product which facilitates transacting (order placement), execution and customer service on a single platform. The product, designed for mutual fund distributors, will enhance the services to stakeholders in increasing geographical footprints, improving operational efficiencies, and most importantly reducing cost significantly.

The BSE has introduced AMFI-Mutual Fund (Advisors) Certification module through the BSE Training Institute, to enable members and sub-brokers to build a cadre of mutual fund advisors and disseminate knowledge about working of mutual funds to investors. The module was introduced with effect from December 21, 2009 through the BSE Training Institute and will be available through BSE Certification on Financial Markets (BCFM).

Regulatory Rigmarole

SEBI has made it possible for investors to shift from one distributor to another without hindrance. Earlier, even if an investor was not satisfied with the services of a distributor he/she could not leave as rules required that they first get a no objection certificate (NOC) from their current distributor. Understandably, almost all distributors would be reluctant to do so and that meant, investors' fortunes were tied to their distributor. The only approach open to them was to exit the market entirely. SEBI has now issued a circular to all AMCs that they should not compel investors to obtain NOCs from their existing distributors. In fact, AMFI had asked AMCs in 2007 to go by what the investors wanted, if they sought to leave their distributor, but this was not being followed, forcing SEBI to step in.

In a move to make the mutual fund industry more transparent, SEBI has asked asset management companies to stop paying commissions to intermediaries, including banks and other distributors, who did not keep proper documents of their clients. The documents relate to know-your-client (KYC) and power of attorney (PoA) norms for the industry. All documents related to investors, including KYC, PoA, in respect of transactions or requests made through some mutual fund distributors are not available with AMCs and registrar and transfer agents. The same are to be maintained by the distributors. SEBI further said that AMCs would have to seek documents for all past transactions and ask for confirmation of folios from investors. The regulator has also asked fund houses to set up a separate customer service mechanism for queries and grievances of unit-holders.

SEBI has said that the fund houses will have to launch additional plans as separate schemes for any ongoing open-ended scheme, other than dividend and growth plans, which differ from the main scheme in terms of portfolio or maturity. The new guidelines will be applicable to all the additional plans that have been launched in the past and the plans / schemes to be launched in the future as a part of existing schemes, unless the fund house obtains a confirmation from the regulator that the additional plans do not have substantially different characteristics from the existing schemes.

2009 would certainly be remembered as a year that sparked a major change in the way India’s mutual fund industry functioned. Market regulator SEBI can take credit for this, possibly in the long run, for laying the platform for this change by altering the manner in which fund houses and distributors sold mutual fund schemes. 2010 could turn out to be a ‘year of revolution’ for the industry, with an array of path-breaking reforms having been implemented or underway.