Debt plans boost mutual funds' asset base in FY10

The combined corpus of Indian mutual funds in March declined 5% to Rs 7,43,950 crore, compared with the previous month. Industry officials said that the dip was expected, as corporates withdrew money to pay advance tax, and partly, to balance their account books for the financial year. Association of Mutual Funds in India (Amfi) data considers the average of the assets managed by fund houses during the month.

Among the top five fund houses, HDFC and Birla Sun Life reported a 6% plus decline in their average assets under management (AUM), compared with the previous month. Reliance Mutual Fund, the number one fund house by assets, logged a 4.6% dip in its assets.

ICICI Prudential and UTI clocked an increase of 0.6% and 1%, respectively, in their assets. So far, 37 of the 38 fund house have released their assets under management numbers. Only Baroda Pioneer Asset Management is yet to announce its numbers.

Despite the monthly decline, the asset base of the mutual fund industry has risen 35% during financial year 2009-10, compared with a 14% decline in the previous year. However, the growth in corpus for 2009-10 has been driven by debt assets rather than equity assets.

From an AMC’s perspective, equity assets are crucial to profitability, as they earn a fund management fee nearly three times of that earned by debt assets. But fund houses don’t mind piling up debt assets, as they boost their overall valuation.

From March ’09 to February ’10, the debt assets of the industry have surged by about Rs 1,98,684 crore, which is huge, compared with the Rs 17,416 crore in the previous year. This year’s rise in debt AUM can be attributed to funds parked by the banking industry with mutual funds on account of excessive liquidity and slow credit offtake.

For the fortnight ended March 12, ’10, banks had an outstanding investment of Rs 1,08,516 crore in mutual funds which is much higher than their investment of Rs 36,781 crore a year ago.

But while the debt assets have been soaring, market volatility and the Sebi rule scrapping entry load in equity schemes of mutual funds have stunted the growth in equity assets in 2009-10. The March ’09 to February ’10 period saw industry’s equity assets increase by just Rs 4,068 crore. During March ’08-February ’09 period, equity assets had grown by Rs 10,623 crore. But for the corresponding period in 2007-08, these assets had surged by about Rs 44,837 crore.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Debt-plans-boost-mutual-funds-asset-base-in-FY10/articleshow/5755764.cms

NISM to conduct Association of Mutual Funds in India certification exam from June

Starting June 2010, the National Institute of Securities Markets (NISM), a division of the Securities & Exchanges Board of India (Sebi), will conduct the certification programme for professionals planning to enter the mutual funds industry.

So far, the Association of Mutual Funds in India (Amfi) has been deciding the syllabus and accepting registration formalities.
But now that the Sebi wants to bring all financial products certification programmes under one umbrella, the Amfi certification too will shift. “From June 1, 2010, the NISM will conduct the Amfi Certification,” A P Kurian, chairman of Amfi, who is retiring in September 2010, told DNA Money.

Amfi has not been able to update the regulatory blitzkrieg that the Sebi has bombarded the mutual fund industry with, since early 2009. The last update on the Amfi syllabus was done in 2006, after which a lot has changed on the Indian mutual fund slate.

Professor G Sethu, Sebi officer on special duty & in-charge of NISM, told DNA Money, “Amfi had last updated its syllabus some years ago and it is now time to include recent changes. In the regular case, Amfi itself would have done it, but we will do it now.”
Asked whether the registration for examination will change, Sethu said, “That procedure may change. We have not decided on it. Maybe the registration can come directly from Amfi.”

“We have to incorporate the changes that have taken place when we start looking at the workbook. They (the syllabus committee) will have to make it up to date,” Sethu added without defining the regulatory changes that would be adopted in the new version.

Until December 31, 2009, the Amfi certified 1.98 lakh individuals, of which 1.014 lakh have been registered as mutual fund agents.
It is learnt that NISM will continue to use the test administrators that the Amfi has been utilizing, which include the National Stock Exchange and Bombay Stock Exchange.

“The Amfi workbook covers what matters. However, we would be reviewing it for clarity, focus and current relevance after changes over a period of time. Objectives will reflect these changes.

Generally reviewing the syllabus of any certification is an annual feature, but in case of significant changes we might decide to review it when required,” said an NISM official not willing to be named.

Presently, the NISM conducts certification programmes for intermediaries in currency derivatives, registrar and transfer agents for stocks and registrar and share transfer agents for mutual funds.

The objective of the NISM is developing certification examinations for professionals employed in various segments of the Indian securities markets.

A newsletter of NISM stated early this year, “Of these NISM will shortly be launching Compliance (stock brokers) Certification Examination. NISM is also currently developing the course material for interest rate derivativesexamination.”

Source: http://www.dnaindia.com/money/report_nism-to-conduct-association-of-mutual-funds-in-india-certification-exam-from-june_1364973

Budget ‘Tailwind’ to Lift India Power, Road Builders, Jain Says

India’s record spending on roads, power plants and ports will provide a “tailwind” for equipment makers, leading the benchmark stock index to a 10 percent gain this year, Principal Pnb Asset Management Co. said.

Principal Large Cap Fund, the best performing among 64 Indian growth and income funds this year, has been adding shares of power and construction equipment makers relative to their weighting in the Bombay Stock Exchange BSE100 Index, Chief Investment Officer Rajat Jain said in an interview.

India, ranked below war-ravaged Ivory Coast and Sri Lanka for the quality of infrastructure, plans to double spending to $1 trillion in the five years to March 2017. That may lift earnings at companies including units of ABB Ltd., the world’s biggest maker of power-transmission equipment, and Siemens AG.

“The tailwind is so strong,” for equipment makers, Jain, who manages $1.85 billion in assets, said in Mumbai yesterday. “Execution is generally improving and we are positively surprised with the order flows.”

Net income at Bharat Heavy Electricals Ltd., India’s biggest power-equipment maker, rose 40 percent in the quarter ended March 31, the fastest pace in more than two years.

Bharat Heavy accounts for 2.6 percent of the Principal Large Cap Fund while Larsen & Toubro Ltd., India’s largest engineering company, made up 3.2 percent of the fund, as of Feb. 28, according to Bloomberg data.

‘Shifts Gears’

“The power sector is poised to remain in a high growth trajectory in the coming years as the government shifts gears on infrastructure,” Bharat Heavy’s Chairman B. Prasada Rao told reporters yesterday. The state-run company expects sales to increase to 500 billion rupees ($11 billion) by 2012, he said.

Spending delays may affect the goal. Projected investment in docks, cranes and wharves may reach 407 billion rupees in the five years ending March 2012, half the original goal, the Planning Commission said on March 23. Funding for road and bridges was lowered to 2.79 trillion rupees because of fewer available assignments.

India is ranked 89 out of 133 nations for its infrastructure, according to the World Economic Forum’s Global Competitiveness Index

Bharat Heavy rose 1.1 percent to 2,415.8 rupees in Mumbai yesterday, helping the BSE Capital Goods Index to a 1.4 percent gain. Jain expects earnings of Bharat Heavy and the 29 members of the benchmark Sensitive Index to rise 21 percent in the year that started yesterday. The Sensex, which has risen 1.3 percent this year, gained 0.9 percent on April 1. The measure rose 81 percent last year, the best annual performance in 18 years.

Indian utilities plan to add 78,700 megawatts of generation capacity in the five years ending March 2012 and 100,000 megawatts in the following five, according to the Power Ministry.

History Expert

Jain’s Principal Large Cap Fund also owns companies including Oracle Financial Services Software Ltd., a unit of Oracle Corp., which has almost tripled in the past 12 months, and Reliance Industries Ltd., India’s most valuable company. The fund also owns ABB Ltd. and Siemens India Ltd.

Jain, who likes to read books on Indian history and World War II, says his hobby helps him in picking stocks.

A fund manager must know the “DNA of the company” and history is about “understanding people and how they have evolved,” he said. Jain often speaks to middle-level managers of companies before investing.

Source: http://www.businessweek.com/news/2010-04-01/budget-tailwind-to-lift-india-power-road-builders-jain-says.html

News notes

Sebi moves to protect MF investors’ money; Ulips more popular in Tier II, Tier III cities

Sebi moves to protect MF investors’ money

On 29 March, the Securities and Exchange Board of India (Sebi) sent an email to mutual fund (MF) houses that they can’t dip into their scheme’s pockets to pay upfront commissions to agents.

Dipping into savings: MFs pay a combination of upfront fees and trail (loyalty) fees to agents. While upfront fee is paid when the agent gets fresh subscriptions, trail fee is paid based on the time the clients stay invested in the fund. Ever since Sebi banned entry loads (charges up to 2.25% imposed at the time of investing, which eventually used to get passed on to agents as their commission), fund houses appear to have been dipping into their reserves to pay upfront commissions.

Before Sebi banned entry loads on direct applications in January 2008, investors used to pay 2.25% entry loads to fund houses. Since fund houses did not pay the agents for such applications, this amount was accumulated in the scheme’s profit and loss account. Further, though entry loads on direct applications were abolished in January 2008, they used to save money from the scheme that would have otherwise been paid to agents as trail commission. Additionally, equity funds charge up to 2.5% expenses to the scheme every year as annual expenses, out of which they meet their administration and office costs, besides their marketing and selling expenses. Any savings here, too, got accumulated in the scheme’s account.

Putting a stop: Ever since Sebi abolished entry loads in August 2009, fund houses have come up with ways to compensate the agents. One way was to dip into the scheme’s reserves out of the money accumulated or saved in the past, to pay distributors.

With the latest directive, Sebi has reiterated that the burden of upfront commissions should not be passed on to the investor. “The spirit behind scrapping entry loads is that investors should get the benefit of lower costs. Else, if loads are paid out from the scheme’s reserves, the purpose behind the regulation is defeated,” says Rajesh Krishnamoorthy, managing director, iFast Financial India Pvt. Ltd.

--Kayezad E. Adajania

‘Ulips more popular in Tier II, Tier III cities’

Fiscal year 2010-11 will see the continuation of two broad trends in the life insurance space: changing distribution strategy and guaranteed products. The global financial crisis exposed the hit-and-run sales practices of the industry that focused on getting more first-year policyholders than continuity. Says Anand Pejawar, executive director, marketing, SBI Life Insurance Co. Ltd: “The focus initially was to grab a larger market pie—in this case, the first-year premium. Mis-selling was rampant. Now the industry has woken up to the fact that continuous flow of premiums is important.”

The stock market crash brought home the risks of unit-linked insurance plans (Ulips) and lapsation rates zoomed. Adds Pejawar: “The rate of lapsation increased in 2008 and 2009 because of the slowdown. Investors who were ill-informed and had invested mainly due to the prior market boom skipped premiums during the crash.”

To address these issues, 2009 saw a spurt of guaranteed products in the Ulip space. Guarantees, ranging from maturity bonuses to capital protection, became the flavour of the year.

A recent survey conducted by Boston Analytics, a financial research firm, has confirmed this trend. According to the Monthly Indian Consumer’s Savings and Investment Behaviour Report, there has been a marked rise in investments in Ulips in smaller cities. But the preference for Ulips has remained almost the same in metros and tier I cities over the past seven months, says the study.

The report surveyed about 10,000 people across 15 cities and towns. “Among those insured, about 80% of consumers surveyed in tier II cities and 75% in tier III cities had invested in at least one Ulip in the past year. Compared with this, just 61% of consumers in metros and tier I cities invested in Ulips in the previous year,” says the report.

Says Debopam Chaudhuri, economist, Boston Analytics: “Ulips that offer guarantees are becoming popular with tier II and tier III cities because they dabble in equities and, at the same time, offer some capital protection by way of guarantees.”

Source: http://www.livemint.com/2010/04/04220452/News-notes.html

MF industry assets grow Rs2.54 lakh cr in FY10

The year was particularly significant as the market regulator Sebi acted in favour of the investors and eased norms making it easier for them to invest in mutual funds

The mutual fund industry shrugged off the recession blues and added over Rs2.54 lakh crore to its assets under management (AUM) in fiscal 2009-10 to take its AUM to Rs7.47 lakh crore.

The average AUM of the fund houses rose Rs2.54 lakh crore or 51% in the last fiscal, from Rs4.92 lakh crore at the end of 2009-09 fiscal, according to the data available with the Association of Mutual Funds in India (AMFI).

Reliance MF maintained its position as the top fund house with a hefty 36% increase in AUM to Rs1,10,413 crore at the end of March.

The other leading fund houses -- HDFC MF, ICICI MF and UTI MF --- also saw an increase in their average AUM.

During the fiscal, HDFC MF’s AUM rose by 54% to Rs88,779 crore and ICICI MF’s asset base increased 57% to Rs80,988 crore. Besides, UTI MF’s AUM stood at Rs80,217 crore at the end of March, higher by 65% YoY.

Analysts believe the growth in the corpus in 2009-10 fiscal was driven mainly by a huge increase in debt inflows as banks parked money with MFs in the time of slow credit off take.

Till February 2010, the total investment in income or debt schemes of MFs was at Rs2.61 lakh crore, while equity schemes saw net inflow of Rs2,611 crore.

With high volatility in the stock market during the year, investors looked for avenues of mutual gains and lesser risk to reap returns on their investments.

In the fiscal the market barometer Sensex gained 80% to 17,527.77 points, thereby maximising gains for equity investors.

The average AUM of the industry hit an all-time high of Rs8.07 lakh crore at the end of November 2009.

The year was particularly significant as the market regulator Sebi acted in favour of the investors and eased norms making it easier for them to invest in mutual funds.

The key changes included abolishment of entry load on purchase of schemes and allowing MFs to be traded on the stock exchanges.

Source: http://www.livemint.com/2010/04/04122100/MF-industry-assets-grow-Rs254.html

SBI raises 18,000 MF sales force

Turns biggest mutual fund marketing machine in India; move puts focus on parent banks’ support to AMCs

India’s largest lender has trained a veritable army to sell mutual funds to its customers, in a year-long programme that could change the face of the country’s mutual fund distribution business.

Around 18,000 employees of State Bank of India (SBI) have passed a mandatory industry test that makes them eligible to sell mutual funds, said two bank employees involved in the programme, giving the public sector bank the biggest mutual fund marketing machine in the country. The two SBI officials requested anonymity.

While a little more than 100,000 individuals have qualified to distribute mutual funds as of December, informal industry estimates suggest that barely 30,000-40,000 of them actively sell mutual funds to clients. The others prefer to sell insurance products after a June decision by the Securities and Exchange Board of India (Sebi) to ban upfront commissions on the sale of mutual fund units to investors.

SBI will thus likely have one-third of the nation’s active mutual funds sales force.

Any person wanting to sell mutual funds in India has to first qualify in an examination conducted by industry body Association of Mutual Funds of India (Amfi). The SBI programme is called ACE, acronym for Amfi Certified Employee.

The Rs7.81 trillion Indian mutual fund industry has been in a state of flux after Sebi banned upfront commissions. The regulator has since encouraged asset management companies to allow investors to buy and sell mutual fund units on the stock exchanges, but volumes have been poor.

SBI has even motivated its employees to take the test by giving a one-time cash award of Rs5,000-10,000 depending on their position in the hierarchy and performance in the test, one of the two SBI officials said.

Though these employees are now eligible to sell units of all the three dozen-odd fund houses in the country, they will focus on products of the bank’s subsidiary SBI Funds Management Pvt. Ltd.

SBI Funds serves its investors through a network of 260 points of sales and service. The parent bank also has 12,207 branches, 8,500 automated teller machines and electronic channels such as Internet banking.

The public sector bank’s aggressive moves in mutual fund distribution is an indication of the growing importance of captive distribution channels compared with third party distributors such as agents.

A recent study by consulting firm McKinsey and Co., Asset Management Survey 2009, said proprietary bank channels and direct sales accounted for just 10% of the total retail inflows into mutual funds. Independent financial advisers and third party distributors accounted for 68% with the remaining 22% coming from nationwide distributors of financial products such as Bajaj Capital Ltd.

In this context, public sector banks such as SBI offer “the next big hope” for the mutual fund industry, said Rajesh Krishnamoorthy, managing director iFast Financial India Pvt. Ltd. “Ten thousand people going to the public and talking about mutual funds is really good for the industry. With such a huge branch network, they are sitting on a goldmine,” he said, referring to SBI’s huge retail customer base.

Krishnamoorthy also pointed to the juicy fee income earned by smaller private banks. “A huge portion of this fee-based income comes from selling investment products to retail individuals,” he said.

“Axis MF (mutual fund) is the perfect example of what a captive bank channel can do to your business,” said Sanjay Santhanam, a former marketing head at leading asset management companies.

According to Santhanam, the idea of public sector banks entering the mutual fund space is just what the doctor ordered for the industry: “But it will be interesting to see how the banks incentivize the staff (for selling mutual funds).”

Axis Asset Management Co. Ltd, which launched operations in October 2009 has been able to mop up a corpus of Rs3,754 crore leaving behind at least 14 of its older rivals aided largely by the distribution muscle of its parent Axis Bank.

The Reserve Bank of India rules do not allow banks to give cash incentives to staff for selling financial products.

Public sector banks are still working out ways to incentivize staff to market various products without running afoul of regulations.

“One of the options is to maintain some kind of a points system, wherein points accumulated can be redeemed periodically for gifts,” said Santhanam, “but if public sector banks have to realize their dream of becoming financial supermarkets, these old rules need to go.”

Mint could not ascertain what incentives SBI is offering its mutual fund sales force.

Even many new entrants into the mutual fund business are those who have a strong banking channel support. Over the past week, two asset management companies announced their plans.


IDBI Asset Management Co. Ltd, which will soon launch its funds, will initially sell its products through the 700 branches of its parent bank.

Union KBC Asset Management Co. Ltd, another new venture, which has received Sebi approval, said it will use 2,700 branches of the Union Bank of India to market funds.

A senior official of SBI Funds Management Pvt. Ltd said: “In the past two months, the banking channel has helped us mop up in excess of Rs1,000 crore. We are one of the few fund houses who have seen net inflows this quarter.” he said.

According to him, the bank can play a much larger role given its network and reach. “At present, the banking channel contributes 25-30% of the inflows. Given its strength, this number can easily be 50-51%,” he said.

Source: http://www.livemint.com/2010/03/31232908/SBI-raises-18000-MF-sales-for.html

‘Global long-term funds to come soon’

The equity markets are doing well, and the assets under management of mutual fund companies are rising. But new regulations have brought down margins and it is now about volumes, Nimesh Shah, managing director, ICICI Prudential Asset Management Company told Hindustan Times. Excerpts:

On growth strategy
AMCs should only worry that their funds should do well. The environment will change but as far as the funds do well we will do well.

On regulations and profitability
The margins have come down both for AMCs and the distributors but if the margins have gone down we should try to increase volumes.

On attracting investors
I think mutual fund is the best products for investors to take exposure in equities. The fundamental thing is to advertise MF as a category, rather than individual products... create awareness of ‘invest in equities through mutual funds’.
As the country grows, corporate earnings will grow, stock prices will grow and so will our investors’ money and their participation.

On bank participation in MFs
In this quarter the money that has come from banks is lower than last quarter. As of now we are fine... the smaller money is much more stable.

On likelihood of long-term FII investment in domestic MFs
The world is looking at India and a part of that has already invested. A lot of hedge fund money is there in the country but I think India should get a lot of long-term money of endowment and pension funds across the world. They are bit worried on the volatility in the Indian markets. But I see a lot more coming in over the next three years.

Source: http://www.hindustantimes.com/Global-long-term-funds-to-come-soon/H1-Article1-527090.aspx