FUND FULCRUM

April 2010

The Average Assets Under Management (AAUM) of the Indian mutual fund industry plunged 4.37% in March 2010 after witnessing a 2.64% rise in February 2010. The industry's assets depleted almost by Rs 34,186.94 crore in March. This is the third time that the industry's assets have tumbled down after touching a record high of Rs 8 lakh crore during November 2009. In December 2009, the industry's assets declined by 1.62% while in January 2010 the assets fell by 4.14%. The fall was largely due to corporates withdrawing money to meet their advance tax payment commitments and partly to balance their accounts book for the financial year. Moreover, huge dividend payouts by fund houses and withdrawal of money by banks from debt fund category have added to the decline of the industry's assets.

According to data released by the Association of Mutual Funds in India (AMFI), the AAUM for March 2010 were Rs 7,43,950.45 crore as against Rs 7,81,711.52 crore in February 2010. Of the 38 players in the domestic market, only 13 could manage to increase their assets. Reliance Mutual Fund's AUM stood at Rs 1,10,412.71 crore at the end of March, a decline of 4.61 per cent. Other large fund houses suffered similar losses. HDFC's AUM fell 6.69 per cent to Rs 88,779.84 crore while Birla Sun Life's assets fell 5.97 per cent to Rs 62,367.11 crore. ICICI Prudential and UTI, however, managed to buck the trend of declining AUMs. Their AUMs grew 0.57 per cent and 1.14 per cent, respectively during March 2010.

Despite being available in the market for over two decades now, less than 10 per cent of Indian households have invested in mutual funds, according to a report released by research and analytics firm, Boston Analytics. Investors are holding back from putting their money in mutual funds due to their perceived high risk and a lack of information on how mutual funds work. According to AMFI data, retail investors account for 26.5% of total assets under management. High networth individuals and corporates account for 18.6% and 50.99% of the total AUM and banks and financial institutions account for 2.9% with foreign institutional investors accounting for just 0.82%.

Piquant parade

Barely a year after it commenced operations in India, Shinsei Bank Limited has decided to sell off its entire stake in Shinsei Asset Management Company (India), which manages Shinsei Mutual Fund, to Daiwa Securities Group (comprising Daiwa Securities Group Inc and Daiwa AMC). Shinsei AMC is promoted by Shinsei Bank of Japan. It holds 75 per cent stake in the AMC; 15 per cent is held by well-known investor Rakesh Jhunjhunwala and 10 per cent by Freedom Financial Services. Under the agreement, the other two domestic share holders too will divest their stakes. SEBI granted approval to Shinsei Mutual Fund in February 2009. Its first fund was launched in June 2009. Shinsei AMC presently has three active funds – Shinsei Industry Leaders, Shinsei Liquid, and Shinsei Treasury Advantage Fund. The decision is part of Daiwa Securities Group’s plan to expand its business in Asia and to enter the Indian domestic asset management business. Shinsei Bank is a leading diversified Japanese financial institution with total assets of US$ 124.9 billion on a consolidated basis (December 2009). Daiwa Group is also a leading financial services group from Japan. Daiwa is Japan’s second largest asset management company with over US$ 100 billion of assets under management.

L&T Finance, the financial services arm of engineering major Larsen and Toubro, bought DBS Cholamandalam Asset Management for Rs 45 crore, valuing DBS at 1.55% of its total assets under management. In June 2009, Japan’s Nomura bought a stake in LIC Mutual Fund for about 2.5% of fund’s assets. In 2009, IDFC bought Standard Chartered Bank’s asset management business for close to 5.7% of its assets. Nomura’s stake purchase of LIC Mutual Fund and IDFC’s acquisition of Standard Chartered AMC were considered expensive because a significant portion of their target fund houses’ assets was debt at the time of the deal.

Mutual fund research firm, Value Research has joined hands with UK-based Financial Express to launch Value Express, a complete solution in investment data management that is designed to help asset management companies, retail investors, and financial advisors to make sound investment decisions. Financial Express is UK's number one provider of mutual fund data and analytical tools. Value Express would offer an overall holistic approach to data, information management, and dissemination that would produce excellent results due to the economies of scale and consistency of approach. It will also assist the maintenance of existing services in relation to market changes, and the development of future services. This partnership will allow Value Research to provide world-class services to the Indian market and its customer-driven approach will enable mutual fund companies of India to achieve higher levels of support and service in a cost-effective manner and with much reduced timescales.

Dhanlaxmi Bank has entered into an alliance with UTI Mutual Fund under which it will offer the entire bouquet of UTI Mutual Fund's schemes to its customers. This alliance with UTI Mutual Fund will help provide quality funds to customers and, thereby, provide more choices and opportunities for financial planning.

Regulatory rigmarole

SEBI has launched a major probe into mis-selling of mutual funds. AMFI has already issued warning letters to four mutual fund entities. The entities warned include HSBC, HDFC Bank, Kotak Bank, and NJ India Invest. More entities are likely to get warning letters. SEBI is probing data from registrar and transfer (R&T) agents. AMFI is reviewing the internal processes. Investors are being lured to switch distributors. There is also need to rein in field staff from grabbing business.

In what promises to become one of the most significant actions ever undertaken by the regulator, SEBI has blocked 14 private insurance companies from promoting and selling new ULIPs. The logic explained in SEBI's order is sound, and there is little doubt that the investment component of ULIPs should be regulated like any other investment product. The finance ministry has said that it will set up a panel to look into the matter. Both IRDA and SEBI have agreed that the decision of this panel will be legally binding on them. Finally, the government has directed both the regulators to go to the court without further delay.

A recent survey by ING group revealed a marked decline in inflation-related pessimism among Indian investors. In fact, with domestic demand remaining firm, Indian investors' positive expectations have soared, outpacing those of investors in all other Asia Pacific economies in Q1 of 2010. According to the ING Investor Dashboard Survey, the India Investor Sentiment Index has climbed further up in the 'very optimistic zone', rising to 174 in the first quarter of 2010 compared to 169 in the fourth quarter of 2009. Indicating growing confidence in the economy, the survey found that 91 per cent of Indian investors believe that the economic situation would improve further in the next quarter. Nearly 60 per cent of Indian investors surveyed planned to increase their investments in local stocks, mutual funds, and unit trusts (both local and overseas) in the next quarter.