MFs post highest profit in 2009-10

HDFC MF the most profitable, followed by Reliance, UTI & ICICI Prudential.

The domestic mutual fund industry recorded its highest profit after tax (PAT) in 2009-10. The industry’s total profit rose four-fold from the previous financial year.

Importantly, the industry made such profits in a challenging year marked by several regulatory changes, like the infamous ban on entry load on equity schemes.

According to a report by the fund industry tracker, Morningstar, fund houses’ consolidated profit after tax in 2009-10 stood at Rs 911 crore as against Rs 224 crore in 2008-09. Prior to the global financial crisis, the consolidated PAT had peaked in 2007-08 at Rs 427 crore, less than half of last year.

The industry profitability, measured by dividing the consolidated profit by total average assets for the financial year, rose sharply to 13 basis points in 2009-10 as against four basis points in the previous year.

HDFC Mutual Fund emerged as the most profitable fund house, with a PAT of Rs 208 crore, followed by Reliance MF (Rs 195 crore).

“The gross income of fund houses has risen substantially, resulting in higher profitability for the industry this year,” said Dhruva Chatterji, a senior research analyst at Morningstar India.

Other fund houses that recorded strong profit growth in FY10 were ICICI Prudential, Birla Sunlife, Kotak and LIC, among others. The 10 largest asset management companies (in terms of assets) accounted for 80 per cent of the industry’s gross income. In 2009-10, their consolidated profit rose 83 per cent, while the consolidated gross income climbed 41 per cent.

Smaller players, such as Quantum, Edelweiss, AIG and Mirae, managed a decent performance on the back of improved profitability.

The industry’s chief executive officers were quite concerned over profitability last year.

The players whose profits dropped include Benchmark, Shinsei, Morgan Stanley, IDFC, Sahara and Baroda Pioneer.

Of the 38 AMCs, 15 were in the red during 2009-10, though their losses fell.

Source: http://www.business-standard.com/india/news/mfs-post-highest-profit-in-2009-10/416801/

Arbitrage funds outdo benchmarks in Nov

Volatile market helps boost performance.

Owing to the volatility in the market, November saw arbitrage funds doing much better than the benchmark indices.

While both the indices saw negative returns, these funds provided returns in the range of 0.5-1.2 per cent.

“Arbitrage opportunities were very good last month as the market was very volatile. These funds give risk-free returns even though they invest in equity, as the positions are already held,” said Mr Raju Singh, mutual fund analyst with SBI Cap Securities. “Around five months ago, there were few such opportunities for these funds to do well. At one point their returns were even lower than that of liquid funds.”

Arbitrage funds perform best in a volatile market. The objective of an arbitrage fund is to provide risk-free returns. Fund managers can hedge their risks by going long in the cash market and short in the futures market.

High returns

November saw a lot of volatility in the market with the Sensex falling by 834 points (-4.05 per cent) and the S&P CNX NIifty by 255 points (-4.17 per cent). The arbitrage funds saw higher returns.

Birla Sun Life Enhanced Arbitrage Fund gave the highest returns at 1.22 per cent, SBI Arbitrage Opportunities Fund was second at 0.98 per cent, followed by Kotak Euity Arbitrage Fund at 0.96 per cent.

Also, these funds do not have very high AUMs. The assets are usually around Rs 100 crore.

“This gives them an advantage as they can then consolidate their portfolios. Having lower AUMs means they can consolidate and diversify their investments,” said Mr Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio.

However, analysts said these funds can put up a better performance. “An arbitrage fund can generally provide 7-8 per cent in annualised returns. Therefore, these funds can actually give higher returns than what they are showing right now since the market is moving in a range,” said Mr Dhakan.

“Arbitrage funds are the safest options as they always hold hedge positions and toggle between cash and the futures options. In that sense, their risk profile is lower. At no point will these funds perform badly because of their hedge positions, except when the markets are either steadily moving up or moving down,” he added.

Source: http://www.thehindubusinessline.com/2010/12/02/stories/2010120251191000.htm

Motilal Oswal seeks nod for Nasdaq ETF

Motilal Oswal Asset Management Company Ltd and the Nasdaq OMX Group, Inc. have filed for an open-ended index ETF, Motilal Oswal MOSt Shares Nasdaq-00 ETF, which seeks to track the Nasdaq-100 Index.

The Nasdaq-100 consists of the top 100 non-financial companies listed on the Nasdaq stock market. “The MOSt Shares N100 will provide investors an opportunity for exposure to the US capital market,” said Mr Rajnish Rastogi, Senior VP & Co-Head of Equities, Motilal Oswal Asset Management Company.

“It aims to provide Indian investors with a global, diversified, rupee denominated, Indian-market-hours access to high growth Nasdaq -100 Index companies such as Google, Microsoft, Apple and other leading global companies,” said Mr Nitin Rakesh, MD & CEO of Motilal Oswal AMC.

Source: http://www.thehindubusinessline.com/2010/12/02/stories/2010120251321100.htm