CRISIL Fund Monitor – Mutual fund asset growth slows to 5 percent in June
Analytical contact:
Krishnan Sitaraman
Director – CRISIL FundServices
Email – [email protected]
Satish Prabhu
Senior Manager – CRISIL FundServices
Email – [email protected]
CRISIL mutual fund index returns
Chart 1 - Mutual fund industry average assets under management
The growth in average assets under management (AAUM) was only 5 percent in June, as compared to 16
percent witnessed in May. Nevertheless the average AUM rose by Rs.319 billion to an all time high of
Rs.6.7 trillion (including fund of funds) driven by inflows into equity funds. At the same time debt fund
outflows towards the end of the month saw the industry’s month-end AUM drop by 12 percent to Rs.5.8
trillion. Despite seeing net outflows of over Rs.850 billion in the month, debt funds continued to
dominate the AUM spectrum with an almost 70 percent industry asset share.
The debt fund outflows were mainly on two counts, one being advance tax outflows (of about
Rs.200-300 billion) and the second were banks pruning mutual fund investments to meet their quarter end
balance sheet requirements on capital adequacy. The latter has begun to have a material impact on the
industry AUM because of the significant investments by banks in mutual funds. As per latest RBI data,
banks’ investment in mutual funds were Rs.1.23 trillion as of June 19, which is expected to have reduced
towards the end of the month due to redemptions by banks to meet their capital adequacy needs. Equity
oriented funds witnessed mark to market losses as their gain in AUM was only Rs.8 billion, almost half
the net cash inflows of Rs.15 billion. As per SEBI data, mutual funds were net buyers of secondary
market equities to the extent of Rs.8.39 billion in June compared to Rs.23 billion in May.
Table 1 - Trend of fund flows and AUM category-wise
Source - AMFI
Continued retail interest in equity markets saw equity oriented funds witnessing net inflows of Rs.15
billion in June, on the back of Indian equity markets’ best quarterly performance in 17 years with the
S&P CNX Nifty gaining 42 percent. June saw the index up by almost 70 percent from its 52-week low.
Despite the best quarterly performance for the June ended quarter, equities saw a reversal of the uptrend
seen in April and May with the S&P CNX Nifty down 3.6 percent in June. Profit-taking, slowing FII
purchases (net buying of Rs.32 billion as against Rs.206 billion in May), negative global cues and an
apprehension of the Union Budget, were some of the reasons behind the reversal. Sector wise IT, FMCG,
capital goods and consumer durables stocks performed the best in June with the respective indices
returning 10, 7.9, 7.4 and 7.3 percent gains. Key losers were realty and oil & gas sectors with the
respective indices ending 16 and 9.9 percent in the red.
IT shares rose on the back of a depreciating rupee, hopes of revival in the global economy and the
government’s plan to spend Rs.400 billion on IT in the coming years (including the recently announced
Unique Identification Authority of India). FMCG shares rose on defensive buying while capital goods
shares gained on views that the government will boost infrastructure investments in the budget.
Mutual Funds see net inflows of over Rs.1 trillion in H1 2009
For the first half of 2009 (H1 2009), Indian mutual funds attracted net inflows of over Rs.1 trillion,
primarily in debt funds (including income, liquid and gilt funds). Equity oriented funds had a share of
only Rs.41 billion (4 percent) of these inflows. Assets under management saw a 41 percent growth (about
Rs.1700 billion) during this period with over two thirds of this growth (absolute) being contributed by
debt funds. However, AUM of equity oriented funds grew at a faster pace of 45 percent in H1 2009
(Rs.547 billion) compared to 40 percent in the case of debt funds (Rs.1153 billion) because of the base
effect. The growth in AUM of equity oriented funds was mainly on account of mark to market gains as
the S&P CNX Nifty and the BSE Sensex were up by 45 percent and 50 percent over this period.
Reliance Mutual Fund remains top assets grosser
Reliance Mutual Fund continued to dominate the asset tally with average assets of Rs.1.08 trillion in June
(up by 5.5 percent). Reliance Mutual Fund garnered nearly Rs.24 billion from its recently concluded
NFO (New Fund Offer) of Reliance Infrastructure Fund. HDFC Mutual Fund retained its second
position, its AAUM witnessed a growth of 3.7 percent to Rs.782 billion. ICICI Prudential Mutual Fund
occupied third spot, its AAUM rose by 7 percent to Rs.702 billion in June. UTI Mutual Fund and Birla
Sun Life Mutual Fund followed with an AAUM of Rs.680 billion and Rs.563 billion, up 7 percent and
down 0.5 percent respectively.
The month saw 26 out of 35 fund houses registering growth in average AUM. Reliance Mutual Fund
topped average AUM growth for the third straight month with a rise of Rs.56 billion followed by ICICI
Prudential Mutual Fund whose average AUM rose by Rs.46 billion in June. UTI Mutual Fund closely
followed with a growth of Rs.45 billion in average assets. In percentage terms, Edelweiss Mutual Fund
recorded the highest growth in average AUM which more than doubled from Rs.200 million in May to
Rs.450 million in June. Morgan Stanley Mutual Fund witnessed the second highest growth in AAUM of
around 20 percent to Rs.22 billion in June. Among key laggards, Bharti AXA Mutual Fund saw a decline
of around 11 percent in AAUM to Rs.2.43 billion followed by Taurus Mutual Fund down 6 percent to
Rs.5.61 billion as of end June.
The CRISIL Fund~eX (tracks diversified equity funds) returned 48 percent during the quarter (highest
quarterly gains since inception) higher than the 42 percent of the S&P CNX Nifty. On a monthly basis,
however, CRISIL Fund~eX lost 1% in June 2009 as against a 3.6% loss in S&P CNX Nifty. The CRISIL
Fund~bx (tracks balanced funds) gave 40 percent returns in the quarter, the second best among CRISIL
indices. It gained 0.5% in June. Among debt-oriented indices, the CRISIL MIPEX (benchmark for
monthly income plans) gained 8% in the quarter but lost 0.11% in June. The CRISIL Fund-dX (tracks
long-term bond funds) saw the highest monthly gains among CRISIL indices of 0.72% in June. Among
the other debt indices, CRISIL STBEX (benchmark for short-term bond funds) gave 0.45% monthly
gains while CRISIL~LX (tracks liquid funds) returned 0.41% in June while CRISIL MF~Gilt Index
(tracks gilt funds) made marginal monthly gains.
JM Basic Fund returns 95 percent in the quarter ended June
Diversified equity funds performed exceedingly well over the quarter ended June. Out of the close to 300
schemes analysed, JM Basic Fund gave the highest return of 95 percent over the latest quarter closely
followed by Taurus Infrastructure Fund with 94 percent gains. Principal Junior Cap Fund (83 percent
gains), JM Emerging Leaders Fund (82 percent gains) and JM Small and Midcap Fund (82 percent gains)
were among the other top gainers. While over two thirds of these schemes beat the returns of the S&P
CNX Nifty, none gave negative returns over the quarter. Meanwhile, IDFC Small & Midcap Equity
(SME) Fund topped the 1-month returns table with 6 percent gains followed by Sahara Midcap Fund
(4.25 percent gains) and Escorts Tax Plan (3.93 percent gains). Over the 1-year period, more than two
thirds of the diversified equity funds analysed were in the positive zone with JM Mid Cap Fund topping
with 32 percent gains for the year ended June 2009 followed by Reliance NRI Equity Fund which gained
29 percent over the year while Birla Sun Life Pure Value Fund rose by 28 percent.
Financial sector leads 3-months and 1-year returns chart; IT funds dominate 1-month returns
The financial sector led the 3-months returns chart with Sahara Banking and Financial Services Fund
returning 80 percent while Sundaram BNP Paribas Select Thematic Funds Financial Services
Opportunities gained 74 percent and Reliance Banking Fund gained 68 percent. The sector also
dominated 1-year returns with UTI Thematic - Banking Sector Fund, Reliance Banking Fund and
Sundaram BNP Paribas Select Thematic Funds Financial Services Opportunities returning 66 percent, 68
percent and 74 percent respectively in the year ended June 2009. IT funds dominated 1-month returns
with ICICI Prudential Technology Fund giving 9.69 percent returns followed by Franklin Infotech Fund
gaining 9.32 percent.
Regulatory Missives
In a major investor-friendly initiative, SEBI announced the abolition of entry loads for all mutual fund
schemes from August 1. It further stated that, going forward, any upfront commission to distributors
shall be paid by the investor directly. Also, distributors shall disclose the commission, trail or otherwise,
received by them for different schemes / mutual funds which they are distributing or advising investors.
This move is likely to result in an “investor pays” advisory model wherein an investor would decide the
amount of commission / advisory fees paid to the distributor based on the value of services rendered.
In the same circular, SEBI also mentioned that out of the exit load or Contingent Deferred Sales Charge
(CDSC) charged to the investor, a maximum of 1 percent of the redemption proceeds shall be
maintained in a separate account which can be used by the AMC to pay commissions to the distributor
and to take care of other marketing and selling expenses. Any balance shall be credited to the scheme
immediately.
Other regulatory changes included, SEBI slashed NFO document filing fee to 0.002 percent of mop-up
as against 0.005 percent charged currently. SEBI also clarified that mutual funds must ensure that
schemes comply with the amended norm on investments in money market instruments, limiting exposure
to a single issuer to 30 percent, within the next three months. In another important development, SEBI,
in view of the improved liquidity scenario, decided to reduce the discretionary mark-up and mark-down
levels applicable for both rated and unrated debt securities for calculating NAVs, to the following:-
•
for a rated instruments with duration up to two years, the revised discretionary mark-up and
mark-down level stands at 100 bps and 50 bps from the earlier level of 500 bps and 150 bps
respectively
•
for a rated instruments with duration over two years, the proposed mark-up and mark-down
levels have been fixed at 75 bps and 25 bps respectively, from the previous level of 400 bps and
100 bps
Impact of the Union Budget
From the mutual fund perspective, the Union Budget’s thrust on infrastructure funding is expected to
result in an increasing appetite for infrastructure-oriented funds. However, in the light of the recent SEBI
circular on entry loads, AMCs may market existing funds within this category, rather than come out with
New Fund Offers (NFOs), exhibiting a marked deviation from the past precedents. The focus on
infrastructure projects is also expected to result in an increasing number of corporate bond and equity
issuances for fund raising by infrastructure companies and institutions. This would provide an expanding
avenue for mutual funds to invest in.
Further, the increased government borrowings and high fiscal deficit (of 6.8 per cent of 2009-10 GDP)
are expected to lead to a rise in bond yields, at least in the short run. This could result in mark to market
losses for high duration mutual funds. As a mitigant, one could see fund managers pruning durations on
their income and gilt funds to limit losses. Also, increasing issuances of State Development Loans is
expected to result in sustenance of the attractive yields for these securities, thus maintaining investor
interest.
The Union Budget has also maintained that the New Pension System (NPS) would continue to be
subject to the Exempt-Exempt-Taxed (EET) method of tax treatment of savings. The NPS Trust,
however, has been exempted from income tax, dividend distribution tax and securities transaction tax for
income, dividend paid and purchase and sale of equity shares and derivatives, respectively. While the tax
concessions given to the NPS trust is a move in the right direction, the EET method of tax treatment for
contributions to the NPS will hinder its potential success in the short term.
Other Developments
These included, AMFI stating that the government has exempted PAN requirement for investments up
to Rs.50,000 in SIPs of mutual funds though a formal notification is yet to be issued; SEBI urging
domestic mutual funds to reduce their reliance on corporate money and focus more on retail penetration
for long-term growth and Japan’s Nomura Holding buying 35 percent stake in LIC Mutual Fund for Rs
3.08 billion.
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