FUND FULCRUM

January 2018

The year 2017 ended on a positive note for the mutual fund industry as the total equity AUM including pure equity funds, balanced funds, ELSS and equity ETFs for December 2017 touched an all-time high of Rs.10.08 lakh crore. This is largely due to increased inflows in equity funds and mark to market gains. While the industry received inflows of Rs.24,239 crore in December 2017, the BSE Sensex and Nifty 50 reached new highs last month. Among equity funds category, pure equity funds received net inflows of Rs.14,921 crore. As a result, the assets under equity funds increased by Rs.33,884 crore to Rs.6.90 lakh crore in December 2017. However, compared to previous month, the inflows into equity funds have declined. Many investors have redeemed their money when the markets touched new highs. In addition, many investors rebalanced their portfolio at the end of year to align with their asset allocation. The mutual fund industry has been receiving substantial equity inflows through SIPs and STPs. Balanced funds continue to attract money from investors as they mopped up net inflows of Rs.9,756 crore in December 2017, up 28% compared to the previous month. Overall, the AUM of the MF industry declined to Rs.21.37 lakh crore in December 2017 from Rs.22.79 lakh crore. The AUM fell by 6.2% or Rs.1.41 lakh crore due to the net outflows in debt funds. Corporates and institutions generally redeem their investments at the end of a quarter from debt funds to pay advance tax.

Equity funds remain the preferred way for retail investors to invest in the markets. The latest SEBI data shows that equity funds including pure equity, ELSS, balanced and equity ETFs added close to 15.4 lakh folios in December 2017. The total folio count of equity funds went up to 5.53 crore in December 2017 from 5.38 crore in November 2017. Experts attribute this addition of folios to optimism prevailing in the market and investor awareness initiatives. In absolute terms, pure equity funds witnessed the highest increase in folios. Over 12 lakh folios were added in equity funds taking the total number of pure equity fund folios to 3.98 crore. Balanced funds followed pure equity funds. Balanced funds added close to 2 lakh folios. Balanced fund folios increased from 51 lakh in November 2017 to 53 lakh in December 2017. Equity ETF was the only equity category to witness a fall in folios. Equity ETF folios decreased by nearly 1 lakh to 7.6 lakh folios in December 2017. Barring gilt funds, gold ETFs and fund of funds investing overseas, all other categories recorded a growth in folios. Overall, the industry has added over 15.65 lakh folios in December 2017. The total folio count across all categories increased from 6.49 crore in November 2017 to 6.65 crore in December 2017. The industry has been running a very ambitious investor awareness campaign, 'mutual funds sahi hai' (mutual funds are right) and this may have added considerably to the growth. Over the last few years, mutual funds have proved to be a low-cost and transparent way to channelise savings towards financial investments.

SIP investors focus on financial goals and stay put for long term. This is borne by AMFI data that shows that 57% of the total SIP accounts are active for more than five years. Of the 1.88 crore SIP accounts as on December 2017, 1.06 crore or 57% SIPs are active for over five years. The total AUM of SIP accounts active for over five years was Rs.41,067 crore. Many investors who have seen at least one market cycle, realized the significance of investing in mutual funds through SIP. These investors stay put for long term and understand rupee cost averaging. In future, we will see large number of retail investors invest in mutual funds for long term through SIPs. Since many distributors ask their clients to link their investment with the financial goals, many investors have been opting for perpetual SIPs. AMFI data also shows that the industry mopped up close to Rs.47,000 crore in April-December through SIPs. In addition, the mutual fund industry has added 9.26 lakh SIP accounts each month on an average during the first nine months of FY 2017-18, with an average SIP ticket size of Rs.3,300. In fact, the total AUM of SIP stood at Rs.2.02 lakh crore as on December, i.e. 9.5% of the overall AUM of the mutual fund industry. Most of these SIPs have come through distributors. AMFI data shows that regular plans constituted 1.7 crore SIP accounts while 17.20 lakh SIPs were in direct plans. The AUM of SIPs under regular plan is Rs.1.85 lakh crore whereas the AUM of SIPs through direct plans stood at Rs.17,000 crore.

Piquant Parade

Italy based UniCredit Financial Services, the foreign partner of Baroda Pioneer Mutual Fund, is the latest foreign fund house to exit the Indian mutual fund industry. UniCredit holds 51% stake in the Baroda Pioneer Mutual Fund joint venture. State run Bank of Baroda, which holds the 49% stake in the fund house, announced that it will buy out 51% stake from Unicredit. The transaction is subject to regulatory approval in India. The move comes on the back of acquisition of Pioneer Investments by Amundi earlier this year. Amundi already has a presence in India as it owns stake in SBI Mutual Fund. Baroda Pioneer has built an AUM of Rs. 11,000 crore as on September 2017. There has been a spate of exits by foreign fund houses, with five foreign AMCs – KBC, Morgan Stanley, ING, PineBridge and Deutsche exiting India.

To be continued…