Mutual fund investors see some relief as markets stage a strong recovery

The mutual fund (MF) investors got some respite on Friday, with the markets staging strong recovery. Over the last one-month period, major equity categories had seen sharp declines of 17-20 per cent with markets reeling from Coronavirus scare.

Large-cap schemes have seen one-month negative returns of 20 per cent. Mid- and small-cap schemes have seen over 17 per cent hit on net asset values (NAVs) in same period.

The above return scorecard is likely to improve after markets logged their largest-ever single-day recovery on Friday after falling as much as 10.8 per cent in intraday session. The Nifty closed 3.8 per cent higher on Friday.

However, the investor sentiments had turned weak amid the recent market selling.

"Client queries have been on the surge, as investors want to know whether they should redeem their investments or stay the course," said an MF distributor.

Industry players remain concerned that continued volatility in markets can significantly hurt equity flows. In February, the industry received Rs 10,795 crore of equity flows, increasing 37 per cent over previous month.

Meanwhile, the systematic investment plans or SIPs -- which have been giving cushion to the industry -- saw marginal dip at Rs 8,513 crore in February.

The short-term returns of equity schemes have taken a sharp beating in the last few days, after market saw a 2,000-point crash on March 9.

Up until then, large-cap schemes had given negative returns of around eight per cent, while mid- and small-cap schemes were down seven per cent apiece.

"Weak hands would look to exit their MF portfolios if the market volatility continues. However, investors that stay put and are able to handle the market volatility can make robust returns over the long-term," said Srikanth Matrubai, chief executive officer of SriKavi Wealth.

"The sell-off seen in March will truly test the long-term orientation of the domestic MF investors. We will have to closely watch if there are any sharp rise in closure of SIP accounts," said senior executive of a fund house.

In February, the SIP closure ratio was at 50 per cent. For every two SIP accounts open, there was one request for closure. In February, 11.39 lakh SIP accounts were opened, whereas 574,000 SIP accounts were discontinued.

Overall, Rs 3.1 trillion of investor assets coming into the industry is through the SIP mode. This accounts for 11 per cent of the total industry assets of Rs 27 trillion.

Mutual Funds' asset base hits Rs 27 trn, bank, PSU funds top allocation

Mutual fund industry saw its assets base surpassing Rs 27 lakh crore-mark in November-end on the back of inflows in debt-oriented schemes including banking and PSU funds, which have a high allocation to highest rated bonds.

The 44-player industry logged an assets under management (AUM) of Rs 26.33 lakh crore in October-end, as compared to Rs 27.04 lakh crore by November end, representing a growth of 3 per cent, according to data from the Association of Mutual Funds in India (Amfi).

Mutual fund houses witnessed an overall inflow of Rs 54,419 crore last month as compared to Rs 1.33 lakh crore in October.

Fund managers attributed growth in the asset base to strong inflows of around Rs 51,000 crore in debt-oriented schemes.

Among debt-oriented schemes, overnight funds -- invest in securities with a maturity of one day-- received flows worth about Rs 20,650 crore, the highest among the fixed-income segment last month.

Apart from this, banking & PSU funds received funds to the tune of Rs 7,230 crore, while Rs 6,938 crore was infused in liquid funds, with investments in cash assets such as treasury bills, certificates of deposit and commercial paper for shorter horizon.

The open-ended equity schemes witnessed an infusion of Rs 1,312 crore, while there was an outflow of Rs 379 crore in close-ended equity plans, taking total equity inflows to Rs 933 crore last month. In October, net inflow in such schemes stood at Rs 6,015 crore.

"While, equity net inflows have come down sharply in November, partly due to investors booking profits, the overall mutual fund industry AUM reached an all-time high of Rs 27 Lakh crore," AMFI CEO N S Venkatesh said

"Goal-based, long term systematic investment plan (SIP) investments from retail investors continue to grow steadily, with SIP AUM at an all-time high at Rs 3.12 lakh crore," he added.

Besides, gold exchange-traded funds saw an inflow of over Rs 7 crore after witnessing an outflow of Rs 31.45 crore in October.

Prior to that, the safe-heaven asset saw an infusion of Rs 44 crore in September and Rs 145 crore in August.

Mutual Fund folio influx hits 3-month high in Oct; 600,000 accounts added

Amid an uptick in the equity market, the mutual fund industry has added more than 600,000 investors' account in October, making it the highest addition in the last three months.

In comparison, the industry had added 345,000 new folios in September, 480,000 in August and more than 1 million in July.

Folios are numbers designated to individual investor accounts. An investor can have multiple folios.

According to data from Association of Mutual Funds in India, the number of folios with 44 fund houses rose to 86,256,880 at the end of October, from 85,626,244 in the end of September, registering a gain of 630,000 folios.

This is in line with the BSE's benchmark Sensex gaining nearly 4 per cent last month.

Industry experts said the addition of folios indicates investors' understanding about market risks associated in the mutual fund schemes.

Number of folios under the equity and equity-linked saving schemes rose by 300,000 to 62.1 million in October-end as compared to 61.8 million at the end of preceding month.

The debt-oriented scheme folios count went up by 105,000 to 6.87 million.

Within the debt category, liquid funds continued to top the chart in terms of number of folios at 1.7 million, followed by low duration fund at 936,000 million.

Mutual fund houses witnessed an overall inflow of Rs 1.33 trillion last month after witnessing a redemption of Rs 1.52 trillion in September. The huge inflow could be attributed to debt-oriented schemes, which witnessed an infusion of Rs 1.2 trillion.

Among debt-oriented schemes, liquid funds with investments in cash assets such as treasury bills, certificates of deposit and commercial paper for shorter horizon saw an infusion of Rs 93,203 crore last month as compared to an outflow of Rs 1.4 trillion in September.

Besides, equity mutual funds witnessed a net inflow of around Rs 6,015 crore last month.

The inflow has pushed the asset base of the MF industry, comprising 44 players, by 7.4 per cent to over Rs 26 lakh crore at October-end from Rs 24.5 lakh crore at end-September.

Mutual fund houses approach Sebi with 125 new schemes in 2019 so far

With just two months to go for the year-end, draft papers for nearly 125 mutual fund schemes have been filed by asset management companies with Sebi so far in 2019, much lower than 211 such documents submitted in entire 2018.

Fund houses attributed the fewer NFOs (new fund offers) in 2019 to tepid investors' sentiment and liquidity crisis in debt funds.

Fixed maturity plan, exchange traded fund (ETF), retirement, sustainable equity fund and business cycle fund are some of the themes for which the mutual fund houses have filed the applications.

Interestingly, many mutual fund companies are also looking at index funds and global funds.

The draft documents for 125 NFOs have been submitted with the Securities and Exchange Board of India (Sebi) so far in 2019 (till October 31), according to the markets regulator.

Of these, some of the schemes have already been launched after getting regulatory clearances.

"We have seen the trends from past as well as that the number of NFOs are higher when the markets are good and lower when sentiments are bad," said Omkeshwar Singh, head of mutual fund distribution business at Samco.

"During last year-and-half, except for the past few funds, most of the equity funds have under-performed, especially in the mid and small caps and also there has been lots of bad news in debt funds. Therefore the NFOs have been lower," he added.

In recent months, the mutual fund industry has been grappling with redemption pressures in the wake of debt crises at various groups, including IL&FS, Essel and DHFL.

Axis Mutual MF, ICICI Prudential MF, UTI MF, SBI MF, Aditya Birla Sun Life MF, Edelweiss MF and Reliance MF are among the fund houses that have approached Sebi with the offer documents for NFOs.

Axis Mutual Fund has sought the regulator's go ahead to introduce Axis Greater China Equity Fund that aims to provide capital growth by investing in equity and equity related securities of companies in China, Hong Kong and Taiwan.

BNP Paribas MF filed information document for BNP Paribas Global Disruptive Technology Fund that seeks to invest in shares of global companies which profit from innovative technologies such as artificial intelligence, robotics and cloud computing.

Mahindra MF approached Sebi for launching Mahindra Top 250 NiveshYojana -- which has been named in Hindi so that investors in rural areas can understand the objectives of the schemes in a better manner.

The 44 player mutual fund industry manages assets to the tune of more than Rs 25 lakh crore.

HDFC Mutual Fund takes Rs 500 crore of Essel group exposures on books

HDFC Asset Management Company (AMC) has offered exits to investors of some fixed-maturity plans (FMPs) by transferring Rs 500 crore worth of their exposures to Essel group firms on to its own books.

This liquidity arrangement would be applicable for FMPs that matured in April or will be maturing as long as the 'standstill' agreement with Essel group firms is in force. 

According to a disclosure made by the AMC, "The liquidity arrangement may involve an aggregate outlay not exceeding Rs 500 crore and will be put in place shortly... Provision of such liquidity arrangement will entail acquisition by the company of non-convertible debentures (NCDs) issued by Essel group companies held by such FMP schemes at prevailing valuation on respective maturity or purchase dates."

These FMPs faced illiquidity due to their exposure to NCDs issued by Essel group firms — Edisons Infrapower & Multiventures and Sprit Infrapower & Multiventures.

Besides the four FMPs of HDFC Mutual Fund (MF) that matured in April, seven FMPs exposed to the two Essel group firms mature before September. According to the 'standstill' agreement, MFs and other lenders had given Essel group firms time till September to settle their dues.

Until then, MFs and other lenders were to put on hold selling promoter shares kept as collateral for these loans.

Overall, HDFC AMC's FMPs maturing before September had nearly Rs 500 crore of exposures to the two Essel group firms. Those FMPs that matured in April had Rs 356 crore of exposure to the Essel group firms. FMPs maturing after September had Rs 377 crore worth of exposures to Essel group entities, an investor note issued in April by the fund house said.

Sources, however, say if the payments related to Essel firms don't come through within the September deadline, the AMC will sell the collateral shares to recover the dues and pay the realisable value to the investors.

In April, some FMPs belonging to Kotak MF and HDFC MF were unable to give full maturity amount to the investors as Essel-related maturities were effectively extended beyond these FMPs' own maturity dates following the 'standstill' agreement.

In May, the Securities and Exchange Board of India (Sebi) had sent show-cause notices to the two fund houses in relation to the FMPs' investments in Essel group companies.

In the following month, the market regulator had initiated adjudication proceedings in the same matter.