FUND FULCRUM

June 2020

Mutual Fund industry has witnessed a marginal growth of 2.5% in its AUM i.e. the mutual fund industry’s AUM has moved up to Rs.24.54 lakh crore in May 2020 from Rs.23.93 lakh crore in April 2020 according to AMFI data. In terms of net inflows in pure equity schemes, net inflows in May 2020 declined to Rs.5257 crore from Rs.6212 crore in April 2020. Among equity schemes, the large cap fund category witnessed the highest net inflows at Rs.1556 crore. Multi cap was the second most popular category with Rs.759 crore of inflows in May 2020. However, both the categories witnessed a marginal fall in net inflows compared to the previous month. In April 2020, large cap and multi cap funds received net inflows of Rs.1691 crore and Rs.1240 crore, respectively. Among hybrid funds, arbitrage fund was the only fund with positive net inflows of Rs.10,806 crore in May 2020. Overall, debt funds witnessed a rise with net inflows of Rs.63,666 crore in May 2020 as against Rs.43,432 crore in April 2020. This indicates a net increase of over Rs.20000 crore in one month. However, the flows were primarily driven by liquid funds which saw inflows worth Rs.61,871 crore. Meanwhile, overnight funds saw outflows worth Rs.15,881 crore in May 2020. Categories like ultrashort duration funds, low duration fund, money market fund, and short duration fund received inflows in May 2020 after heavy outflows in the previous month. Further, Monthly SIP flows decline marginally from Rs.8370 crore to Rs.8123 crore, a decline of Rs.247 crore. The total SIP AUM stood at Rs.2.76 lakh crore as on May 2020. Despite economic uncertainty and market volatility, investors show matured investment behaviour and continue to repose confidence in equity mutual funds as is evident from the robust monthly SIP contribution. On the debt side, investors taking advantage of reducing interest rates trend and shift towards high quality AAA rated instruments has resulted in steady rise in the net flows. Credit risk concerns have ebbed, following regulatory support, redemptions have come down and investors have been allocating higher quantum of savings to high quality debt paper.

According to data from Association of Mutual Funds in India, the number of folios with 44 fund houses rose to 9,10,41,392 at the end of May 2020, from 9,04,28,589 at the end of April 2020, registering a gain of 6.12 lakh folios. In comparison, the industry had added 6.82 lakh new folios in April 2020. The total folio count stood at 8.97 crore in March 2020, 8.88 crore in February 2020 and 8.85 crore in January 2020. Addition of folios suggests that investors were undeterred by the market volatility. Besides, it indicates their understanding of the market risks associated in the mutual fund schemes. The number of folios under the equity and equity-linked saving schemes rose by 3.22 lakh to 6.53 crore at the end of May 2020 as compared to 6.49 crore at the end of the preceding month. The folio count of debt oriented schemes went up by more than 30,600 to 71 lakh. Within the debt category, liquid funds continued to top the chart in terms of number of folios at over 19 lakh, followed by low duration fund at 9.3 lakh. Overall, mutual fund schemes witnessed an inflow of over Rs 70,800 crore last month, much higher than Rs 46,000 crore infusion in April 2020.  Recent AMFI data shows that mutual fund industry has witnessed discontinuation of 5.40 lakh SIP accounts in April 2020 compared to 6.02 lakh in March 2020, 5.74 lakh in February 2020, 5.95 lakh in January 2020 and 5.91 lakh in December 2020. This can be attributed to recent recovery in markets, handholding by advisors and distributors and increasing awareness about mutual funds.

In terms of managing equity assets in B30 cities, SBI MF has emerged as the top fund house with an average equity AUM of Rs 35,566 crore in March 2020. The fund house has benefitted from SBI’s strong banking channel in B30 cities. Data shows that nearly Rs 20,000 crore of equity AAUM has come through associate distributors in B30 cities, while Rs 12,502 crore came through non-associate distribution route. Associate distributors are those distributors who share parentage with the AMCs. HDFC MF is the second largest fund house in this space with an equity AAUM of Rs 33,101 crore. Next in the list is ICICI Prudential MF with an equity AAUM of Rs 27,854 crore. Other fund houses in the top five include Aditya Birla Sun Life MF and Nippon India MF. While Aditya Birla Sun Life MF’s equity AAUM in B30 cities stands at Rs 20,644 crore, equity AAUM in B30 cities of Nippon India MF is at Rs 20,475 crore.

·         In percentage terms, at nearly 42%, UTI MF has the highest equity AAUM from B30 locations among the top 10 fund houses

·         In percentage terms among the top 20 fund houses, Baroda MF has the highest equity AAUM at around 47%from B30 cities

·         LIC MF is another fund house that relies considerably on B30 cities.  Nearly 41% of its total equity assets comes from B30 cities

·         Of the top 21, five fund houses - Baroda, UTI, LIC, SBI and Sundaram - have more than 30% of their total AAUM in B30 cities

·         As many as 20 fund houses have more than Rs 1,000 crore of equity AAUM in B30 cities

HDFC MF leads in managing equity assets in T30 cities. HDFC MF’s total average equity AUM in T30 cities stood at Rs 1.08 lakh crore in March 2020. Of this, nearly Rs 73,858 crore of equity AUM has come via non associate distributors, Rs 10,366 crore through associate distributors and the remaining Rs 24,414 lakh crore via the direct route. ICICI Prudential MF is the second largest fund house in this list. The fund house has missed the top spot by a whisker with an equity AAUM of Rs 1.04 lakh crore in T30 cities. Like HDFC MF, ICICI Prudential MF also relies considerably on non-associate distributors. The fund house has garnered Rs 63,292 via non-associate distributors, Rs 15,940 through associate distributors and Rs 25,426 from the direct route. India’s largest fund house SBI MF is in the third position with Rs 60,006 crore of equity assets in B30 cities. Other top fund houses in this list include Aditya Birla Sun Life MF, Kotak MF and Nippon India MF. While ABSL MF’s equity AAUM in T30 stood at Rs 55,128 crore, Kotak MF’s at Rs 53,488 crore and Nippon India MF’s at Rs 52,082 crore.

·         JM Financial MF, HSBC MF, IIFL MF and Edelweiss MF are among the fund houses whose equity assets are highly concentrated in T30 cities

·         JM Financial MF’s 94% equity assets come from T30 cities. For HSBC MF, the number stands at 92%,  IIFL MF at 91% and Edelweiss MF at 90%

·         Overall, there are 17 fund houses which accumulate more than 80% of their equity assets from T30 cities  

Distributors continue to command a significant portion of the total MF industry’s assets. AMFI latest data shows that the proportion of direct versus regular in the MF industry was 45:55 i.e. 45% of industry’s assets has come from direct plan while 55% of assets were invested through regular plans. The higher affinity towards regular plans is largely due to contribution from individual investors. AMFI data shows that 86% of retail investor AUM has been invested through regular plans while 78% of HNIs’ assets have come to the industry through regular plans. Individual investors continue to prefer distributors over direct plans. Many investors be it HNIs or retail prefer investing in mutual funds through regular plans as they recognize the value added by distributors. The trust factor also comes into play. In fact, the recent market turmoil has made the case for expert advice stronger. In terms of scheme category, 81% of equity assets have come from regular plan while 47% of debt AUM was in regular plan as on March 2020. Meanwhile direct plan was seen as the most preferred option for investment in ETFs and FOFs as nearly 80% assets in these fund categories came through direct plan. Similarly, liquid/money market funds were dominated by institutional investors with 72% of assets through direct plan. 

AMFI data shows that the share of individual investors in the mutual fund industry AUM fell to 52.2% in March 2020 from 55.1% in March 2019. The total assets of individual investors stood at Rs.12.90 lakh crore as on March 2020 compared to Rs.13.62 lakh crore in March 2019. Individual investors include retail investors and HNIs. In the last one year, equity and debt markets have witnessed many challenges. In addition, underperformance of equity funds especially in mid and small cap space and series of credit events have shifted individual investors focus to traditional investments like bank FDs and gold. On the contrary, institutional investors' share in the industry increased to 47.8% in March 2020 from 44.9% March 2019. About 93% of such investors are corporates while the rest are FIIs and banks. Further, data shows that equity oriented schemes derive 87% of their assets from individual investors.  Similarly, debt oriented schemes (56%), liquid funds (84%), ETFs, FoFs (92%) derive majority of their assets from institutional players. Overall, individual investors allocate 66% of their total investment in equity oriented schemes while institutional investors allocate 76% of their assets to liquid and debt oriented schemes. Usually, individual investors hold equity funds while institutional investors are inclined towards debt funds. 

Of the total Rs.3.70 lakh crore of retail equity assets, Rs.1.80 lakh crore of retail equity assets stayed put for more than two years as on March 2020, shows the age-wise analysis of MF assets. The proportion of retail equity AUM that stayed invested for more than two years increased in the last one year from 41.7% to 48.7%, an increase of 7%. Half of retail equity assets have remained invested for over two years indicating that investors have understood equity funds and can beat other asset classes in the long run. In fact, they have seen how so many investors have achieved their financial goals by remaining invested in equity funds for long term. Most asset classes have not performed well for quite some time. In such a scenario, many investors see equity funds as a better alternative to other asset classes. AMFI data further shows that 24% of total retail equity assets remained invested between 1 and 2 year period. In FY 2018-19, 23% of retail equity assets stayed put for 1-2 year.

The nationwide lockdown and volatile equity markets did not deter investors from participating in India’s growth story through mutual funds. The latest AMFI data shows that the MF industry has added close to 1.60 lakh unique investors with PAN, taking the overall investors count in mutual funds to 2.10 crore in May 2020 from 2.08 crore in March 2020. While the industry has added close to 54,000 new investors in May 2020, the MF industry added 1.04 lakh unique investors with PAN in April 2020 equity AAUM in B30 cities. However, if we dig deeper, the MF industry has witnessed a slowdown in terms of addition of new investors. The industry had added 1.45 lakh new investors in March 2020, 2.23 lakh in February 2020 and 1.51 lakh in January 2020. Nevertheless, given the circumstances, these numbers are no less heartening given the fact that many distributors, advisors and bank RMs rely heavily on in person meetings and physical transactions to onboard clients.

Piquant Parade

AMCs are helping their distribution partners cope up with today’s challenging times through training programs. Aditya Birla Sun Life MF has been holding webinars for distributors to keep them motivated through these tough times. Motivational training programs have been scheduled zone-wise to ensure maximum reach. So far, seven sessions have been conducted with more than 1000 distributors taking part in these sessions. Besides, fund managers and sales heads have been continuously engaging with distributors to educate them about current market volatility through conference calls. SBI MF has also been conducting training programs on market dynamics and asset allocation. Further, SBI MF has set up a team to help MFDs shift from physical transactions to digital transactions through webinars. Quantum MF has a digital training platform which offers e-learning courses, advanced tools and calculators. It has started a telegram channel for MFDs to address their queries and concerns on mutual funds. The top management of Mirae Asset MF has been engaging with distributors through video conference on topics such as current market scenario, sales of their products, managing business during lockdown efficiently and so on. The turnout has been much higher on these digital platforms compared to physical meetings. He has been conducting video interviews with top distributors on Facebook Live to keep the distribution community motivated. Similarly, Franklin Templeton Academy has started offering a series of structured programs that touch upon different aspects of the investment advisory business such as practice management, soft skills, macroeconomics, financial markets and investment concepts. The platform offers “Netflix style” user interface. The key feature of this platform is smart and intelligent course recommendations depending on learner(s) behaviour and knowledge levels. With the launch of online learning platform, now Franklin Templeton has omni-channel training delivery formats through classroom sessions, webinar programs and FT Academy Online courses aimed at upskilling distributors. The platform also offers the option to enter into a private classroom (customized content) for distributors with specific needs for their teams and employees. Nippon India AMC has been conducting various activities to ensure that distribution partners adopt the digital route. The fund house has launched Digital@Edge, a face to face training session through Zoom. So far, they have conducted more than 50 sessions and over 2000 MFDs across the country have participated in them. These sessions have been designed as a mix of behavioural finance sessions to handhold distributors while dealing with their clients amidst uncertainty and fear on macroeconomics.  

IDFC Mutual Fund has launched its investor awareness initiative video jingle campaign – ‘Smart Bano, Invest Karo’ in Hindi and ‘Be Smart, Stay Invested’ in English. Both these videos promote the importance of staying invested in volatile times and investing money whenever the market corrects. IDFC MF commissioned the video jingle keeping in mind that the world in lockdown mode is going through a tough phase and the financial markets are in turmoil. People are worried about the state of their current investments and how they will perform in the future. IDFC Mutual Fund addressed this concern through the jingle in a light-hearted manner reminding everyone that even though the markets are down, investment opportunities still exist.

Mahindra Mutual Fund is now Mahindra Manulife Mutual Fund. With this, all schemes of the fund house will have the prefix Mahindra Manulife. The rationale for the acquisition was to look for an alliance that could bring fund management process with proven track record. Manulife is one of the big names in developed markets with focus on asset management business. The alliance will strengthen the fund management process which has proven track record of success across geographies. Manulife brings with it international experience. Manulife group has been active in many countries like US, Canada, Singapore, UK and so on. This alliance would help Mahindra Manulife Mutual Fund to learn from international practices and implement proven business development practices that have worked well in international markets. This fund house would explore opportunities in international funds /offshore funds to leverage the international expertise of Manulife. However, the fund house will wait for opportune time to launch such products. In April 2020, Manulife, Canada based global financial services group completed acquisition of 49% stake in Mahindra AMC. Manulife invested US$ 35 million (around Rs.265 crore) in this joint venture. This indicates that Mahindra AMC is valued at 10% of its assets. The fund house manages AUM of Rs.5400 crore as on March 2020. Manulife is a leading international financial services group, providing asset management and life insurance solutions with AUM of over US$ 915 billion as of December 31, 2019.

Franklin Templeton India Mutual Fund has appointed Kotak Bank to assist them in monetizing assets of the wound up schemes. Kotak Bank through its debt capital markets team will work closely with Franklin Templeton trustees to assist with all portfolio actions in the six schemes to be wound up. The fund house believes that that this appointment will expedite the asset monetization process of the fund house. Franklin Templeton is committed to ensuring an orderly and equitable exit for all investors at the earliest possible time, and the fund house will partner with the Board of Trustees and Kotak Mahindra Bank to ensure an efficient wind-up of these schemes, while preserving maximum value for investors.

…to be continued…