Inflows in debt and overseas funds pushed up the mutual fund industry’s assets under management (AUM) in August, as per the data released by the Association of Mutual Funds in India. The industry’s assets increased 4.8% to 7.5 trillion rupees (756, 638 crores), spread across 36 asset management companies (AMCs), last month. As compared to this, the fund industry recorded whopping 24% jump in its assets in July. In addition to income funds, the overseas category was the only other category to register sales in August.
Income funds recorded significant amount of inflows, amounting to 382.75 billion rupees (38,275 crores) last month. We think investors, particularly institutions like corporates, banks and high net worth individuals, switched to ultra-short debt funds, from liquid funds post the latter’s returns were impacted after the Securities and Exchange Board of India’s (SEBI) norms on liquid funds investments.
The capital market regulator, earlier this year, had asked liquid funds to make investments in debt and money market securities upto 91 days maturities. Liquid funds, which prior to May, were investing in securities above 91 days maturities to push up their returns, fetched between 7-8% annualised returns. However, post the new norms, their returns declined significantly to around 6% for the one-year period as of July.
Liquid funds are primarily sought after by institutional investors to park their surplus funds, owing to their attractive returns and immediate liquidity features. This category normally witnesses significant inflows or outflows every month. Currently, the industry has 1.27 trillion rupees (127, 429 crores) in liquid funds. Assets, excluding liquid funds, grew 8% in August on month-on-month basis.
The capital market regulator’s move on entry load structure, which came into practice from August 1, had its impact on sales of equity funds. The equity and balanced funds categories experienced over 50% drop in their sales in first month of the new norms. The industry anticipated this impact, given the fact that mutual funds sales, particularly equity funds, have no longer remained an attractive business for most of the distributors, including independent financial advisors who play significant role in mobilizing equity funds money from retail and high net worth investors.
Under the new norms on entry load structure, investor will no longer have to pay any entry load while making investments in mutual funds’ schemes. This is more applicable to equity funds, which had entry load structure in place. The AMCs prior to August were compensating distributors through commissions paid normally from entry loads charged to investor.
The gilt or government securities funds category continued to witness redemptions in August, owing to negative returns. Increased inflationary pressures led by a rise in commodity prices and higher government borrowings weighed on government bond prices last month. This category registered 80% drop in its sales and coupled with 4.46 billion rupees (446 crores) of outflows, led to 11% fall in its assets. In July, their assets declined by 19%.
The August month also witnessed launch of two offshore funds – DSP BlackRock World Energy Fund and JP Morgan Greater China Equity Off Shore Fund, which totally collected 4 billion rupees (400 crores), pushing up the assets under the overseas category.
In terms of percentage change in AUM, top-15 funds registered 10% growth in assets with LIC Asset Management and Religare Asset Management each recording over 20% growth in their respective assets. Kotak Mahindra Asset Management Company’s assets climbed 18% during the month. The top-15 AMCs accounted for 80% of total industry’s assets.
In terms of pecking order, Reliance Mutual Fund remained at the top position with 1.17 trillion rupees (117, 314 crores) in assets. HDFC, ICICI, UTI and Birla AMCs retained their second, third, fourth and fifth positions, respectively during the month. These top-five AMCs contributed to 57% of total industry’s assets.