MF Industry Updates

Beating The Retreat

After touching the Rs 6 lakh crore mark in May ’08, the MF industry’s assets under management are now falling back to the levels seen in the second quarter of FY08

THE QUARTER ended June ’08 was a rollercoaster ride, not only for the Sensex and Nifty, but also for the assets under management (AUM) of the mutual fund (MF) industry. After touching the historic Rs 6 lakh crore mark in May ’08, the industry’s AUMs are now falling back to the levels seen in the second quarter of FY08. Since investors’ confidence has been badly shaken by the frequent market jitters, it seems they have now tightened the grips on their wallets. The MF industry’s AUMs have taken a beating at both ends.

While on one hand, a falling market has eroded the valuations of investors’ portfolios considerably, on the other hand, all attempts by MF houses to lure fresh money into their funds seem to be falling flat.

As of June ’08, the average AUM of the MF industry was the lowest for calendar year ’08 and eroding further, in July ’08, it stood at Rs 5,29,629 crore. This was lower than the October ’07 level of Rs 5,31,968 crore. The past two months — June and July ’08 — alone accounted for an average outflow of over Rs 70,000 crore.

This is certainly not a good sign for an industry that had just begun to grow during the bull run (which started five years ago), after having struggled for decades to gain confidence of domestic investors, who had always been attracted to traditional avenues of investment.

However, though the MF industry’s overall scenario in terms of AUM collections was quite bad, the impact on individual fund houses was mixed. Out of the 33 fund houses which are currently in operation, the AUMs of 18 registered a decline during April-July ’08, while 14 fund houses saw an increase in their AUMs.

The fund houses that witnessed a sharp drop in AUMs during the period include Baroda Pioneer (-23.2%), DBS Cholamandalam (-21.9%), ING (-19.6%), DWS Investments (-16.9%) and JM Financial (-14.6%). On the other hand, Mirae Asset, Canara Robeco, JP Morgan, ABN Amro and LIC were the top asset gainers during the period.

Among the top five fund houses, except for Reliance and UTI, others managed to increase their asset sizes. HDFC, with 13.4% growth, led the pack. However, this comes as a surprise since its schemes have begun to trail in performance.

The increase in AUMs reported by some of the fund houses seems to be on account of an increase in the assets managed by debt funds. This is indicated by the data in the monthly reports released by the Association of Mutual Funds in India (Amfi).

The AUM of income or debt funds increased by about 16% during April-June ’08. On the other hand, equity funds registered a decline of 12.5% in their assets during the same period.

As a result, the share of equity schemes in the total industry’s AUM declined from 31% as on March 31, ’08 to 26% as of end June ’08. The share of income funds, on the other hand, increased from 44% to 49% during the period.