Fund houses expand businesses to global addresses

Local fund houses are expanding their fund management and advisory businesses to overseas destinations to boost profits and to expand their asset base. Encouraged by a good investor response to Indian assets — especially equities and realty — leading fund houses are now in the process of opening branch offices in tony addresses world-wide, according to fund managers.

Top fund houses, such as Reliance Mutual Fund, ICICI Prudential Mutual Fund, Birla Sunlife Mutual Fund, HDFC and UTI, have plans to open offices in the UK, the US, Singapore, Japan and the Gulf. Most fund houses are now selling their offshore products through foreign distributors by paying huge commissions. Domestic funds are setting up overseas branches to establish a “better connect” with investors in those countries. They are trying to position themselves from being plain investment advisors to foreign investment banks to offshore fund managers.

“Having permanent establishments in foreign countries — from where you raise money — reflect your long-term commitment towards investors in those countries,” said Sundeep Sikka, CEO, Reliance Mutual Fund, which has subsidiary offices in Malaysia, Singapore, the UK, Dubai and Mauritius.

According to Mr Sikka, Indian fund houses are getting a significant amount of money from overseas investors. “Foreign investors are showing a good interest in Indian shares. Foreign investors are warming up to the idea of having an onshore fund manager to manage their investments in emerging markets, including India,” he said.

ICICI Pru MF and Birla Sunlife Mutual are also looking at options to start businesses in top cities. The aim of these funds is not to attract NRIs, but to service foreign investors. Kotak MF already has offices in London, New York and Dubai, while UTI Mutual Fund has offices in a few capitals in Europe, including London. Kotak MF and Birla Sunlife are managing a few India-focused funds from these destinations. According to fund managers, HDFC Mutual Fund is also looking to set up offices in the Gulf, after it received the mandate to advise Abu Dhabi Investment Authority (ADIA) on India investments.

“Selling mutual funds is becoming very difficult in India. The regulator has scalped our profit margins by a good measure; we are left with no option, but to approach overseas investors. We help these investors invest in Indian equities and real estate,” said the chief investment officer (CIO) of a bank-promoted fund house who spoke on the condition of anonymity.

According to the CIO, even foreign tie-ups are not helping Indian fund houses raise money from overseas investors. “Foreign partners don’t pass their clients to us... this is forcing us to seek our own clients in overseas markets,” the CIO added.

Managing foreign investors’ money is a high-margin business for most asset management companies. Depending on fund performance, foreign investors are charged anywhere between 2.5% and 4% as asset management charges by domestic fund houses. Investment advisory business yields just about 1-1.5% as advisor fees. Apart from funds, subsidiary (branch) offices also sell private equity and PMS products (after getting regulatory approvals) in foreign markets.

Local fund houses are now expecting large inflows into their offshore funds over the next few months. India-focused funds have managed superb returns over the past one year, making it very popular among foreign investors. About 75 India-dedicated offshore funds beat the Sensex, which gained about 17% in one year. About 37 funds returned more than 25% — the average category returns posted by domestic equity funds.

Source: http://economictimes.indiatimes.com/Personal-Finance/Fund-houses-set-sail-for-tony-global-addresses/articleshow/6527692.cms

Fund houses say no to zero exit load

Domestic fund houses have expressed reservations against making equity schemes free of exit load, fearing this will be suicidal for a struggling and unstable fund market. The fund houses said this would increase churning of portfolios and hurt existing investors.

The concerns surfaced after Bharti AXA Mutual fund last week reduced the exit load on its equity schemes to zero. The fund house, which made the move effective from September 1, said this would provide investors the comfort of exiting whenever they want due to the current volatility in the equity segment.

At present, fund houses charge an exit load of one per cent for a one-year investment.

At a time fund houses are losing business due to last year’s ban on entry load, industry players say zero exit load will worsen the situation.The first four months of the current financial year have seen a net outflow of Rs 7,613 crore compared with a net inflow of Rs 7,290 crore in the corresponding period last year. “No exit load will lead to an increase in inflow-outflow of funds and benefit only unscrupulous investors. Mutual fund schemes will become a trading arena for them. This will affect other investors who will start taking short-term calls on their investments,” said a chief executive officer (CEO) of a mid-sized fund house.

A majority of the CEOs Business Standard spoke to denied any possibility of following the no-exit-load strategy. They said exit load was a deterrent for investors to stick with their investments for at least a year. Serious investors, they added, would not come to equity funds if exit load was removed.

“The overall impact won’t be good for investors as well as the fund houses. The existing investors will be hit as the net asset value will become more volatile if new investors start taking trading calls,” said the CEO a top fund house.

The executive director of an independent body which tracks the industry said, “The move to introduce zero exit load is an unfortunate and strange development when fund houses are hardly getting anything from their current business. It will invite speculators to equity funds.”

Mutual funds should not be taken as an opportunistic investment, said the CEO of another mid-size fund house. Rather, he added, it was an asset allocation tool for those with a long-term perspective. “I do not know what purpose will it serve,” he said.

Some small fund houses which have not reached a critical size in terms of equity assets are worried. They said bigger fund houses might not have any impact on their funds. “However, for a small fund house like ours, such a move from our peer may bring undue competition for attracting more funds,” said the CEO of a fund house which manages around Rs 100 crore.

Source: http://www.business-standard.com/india/news/fund-houses-say-no-to-zero-exit-load/407574/