Mid-sized MFs outpace majors in first quarter

Institutions and firms allocating larger quantum of funds in debt segment.

Mid-sized domestic fund houses outpaced the industry's top majors in building assets in the June quarter. This is due to the shift in allocation of funds by institutions in smaller players and fixed maturity plans (FMPs), that led to a burgeoning corpus in their debt category.

SBI MF, IDFC MF, Tata MF, Deutsche MF and Kotak Mahindra MF, which manage between Rs 10,000 and Rs 50,000 crore, witnessed their assets under management rise by as much as 35 per cent. At a time when the assets’ growth rate for the top five players is below 10 per cent, players in the second rung are riding on a higher growth trajectory.

Even in the previous financial year (2010-11), when the industry’s overall assets fell by a little over six per cent, and the three top players got a worse hit, mid-sized ones managed a comparatively better performance.

During the June quarter, the average assets of Reliance MF fell compared with the March one. UTI MF registered less than three per cent growth. ICICI MF, HDFC MF and Sun Life Birla MF managed to grow their assets by five to nine per cent.

“There is a major boost from the re-allocation of funds by institutions in short-term and ultra short-term schemes. Institutional money is pouring into the mid-sized fund houses in a larger quantum. However, on the equity side, the scenario is still bleak,” explains an industry CEO who did not want to be named for this story.

Consider this: Inflows in the debt category was the highest for ICICI MF, which saw a rise of 13.6 per cent in its debt assets, while others remained below 10 per cent and in the case of Reliance MF, the rise in debt assets was a marginal 0.37 per cent.

On the other hand, debt assets rose 39 per cent for Deutsche MF and IDFC MF, while SBI MF saw a 27 per cent rise and Tata MF registered a growth of 15 per cent in these assets.

According to an industry expert, “Institutions seem to be putting their funds across the board and not confining themselves to selective fund houses.

Institutions, including corporates, are not allocating larger sums in fund houses where they are already invested.”

Dhruva Chatterji, senior research analyst at fund tracker Morningstar India, says, “Launch of FMPs by the mid-sized fund houses also helped the players garner assets during the quarter.”

Source: http://www.business-standard.com/india/news/mid-sized-mfs-outpace-majors-in-first-quarter/443481/

HNIs take fancy to debt funds & FMPs, lose taste for structured products.

Exotic structured products, which adorned the portfolios of rich investors till about a year ago, are slowly being replaced by high-yielding debt funds and fixed maturity plans (FMPs). Higher fixed income yields, range-bound equities market and aversion to complex investment products are prompting HNIs to avoid structured products and invest in simple debt funds, wealth managers and product manufacturers said.

Apart from simple 'yield-plus-Nifty participation' type of products, none of the complex structures are being sold by wealth managers in significant numbers. These are structures designed to provide capital protection; nearly 75-80% of the corpus is held till maturity in bonds while the remaining portion is actively invested in a Nifty stock basket. The final payout is based on the return of the underlying equity.

"Investors, who are willing to take risk, are only investing in capital protected schemes, which is your regular yield-cum-Nifty participation product. Otherwise, money is chasing fixed income products now," said Shariq Hooda, head of third party products at Religare Securities.

FMPs and high-yielding non-convertible debentures are seeing more inflows than complex structured products, Mr Hooda said. It is range-bound equities market that is making investors allocate more to debt funds. With short-term rates hovering at 9-9.75%, investors are looking to lock-in money at higher rates in FMPs and long-bond funds (8-10 years' tenure) - both of which are yielding near - 10% returns. FMPs - both short-tenured and longer duration portfolios - are a big draw among affluent investors. Average asset under management in FMPs have surged 38% from 87,033 crore in December 2010 to 1,20,662 crore in June 2011, according to Value Research data. Structured products, which compete with FMPs in terms of returns and a certain level of safety, are not finding enough takers, product manufacturers said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/hnis-take-fancy-to-debt-funds-fmps-lose-taste-for-structured-products/articleshow/9305638.cms

Mutual Funds panel for removing expense ratio cap.

The committee on mutual funds appointed by SEBI to look into the issues faced by the industry is likely to submit its recommendations to the Board of SEBI when it meets on July 28.

One of the issues that the committee has addressed pertains to the expense ratio of asset management companies, sources said. The committee, it is gathered, is recommending that the sub-head caps within the expense ratio be done away with. This will provide some room to mutual funds to give better commissions to their agents.

Expense ratio is how much an investor pays a fund in percentage terms every year for management of his money. This could involve management fees, commissions to agents, fees to registrars and marketing and promotion expenses.

Currently the expense ratio has been capped at 2.5 per cent for equity funds; and there are various sub-categories of expenses which also have their own caps. It is known that the committee is planning to do away with these caps and leave the break up of expense distribution to the discretion of the mutual funds.

It may be recalled that SEBI had, during the Chairmanship of Mr C B Bhave banned entry loads on mutual funds. A large part of this entry load used to be paid as distributors' commission. After the ban the mutual industry went through a black patch when many distributors stopped selling mutual funds.

When Mr U K Sinha took over as Chairman at SEBI, he appointed a seven-member committee, chaired by whole time member Mr Prashant Saran to look into the problems of the mutual fund industry.

Mr Sinha after taking over at SEBI has been often quoted as saying that while mutual fund distributors should be incentivised, the entry load ban will not be lifted.

In fact one of the first circulars issued by SEBI after he took over related to mutual funds. SEBI in March said that load balances of mutual funds shall be segregated into two accounts – one to reflect the balance as on July 31, 2009 and the other to reflect accretions since August 2009. The first load balance can be used for marketing and selling expenses including distributor/agents' commissions, subject to not more than one third of the balance being used in any financial year. The second account could be used without any restrictions.

Yet another recommendation of the mutual fund committee is for a one time flat fee of Rs 100 to Rs 125 to be paid by newcomer to a mutual fund.

Source: http://www.thehindubusinessline.com/todays-paper/tp-markets/article2282777.ece