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Journalism of Courage
Sizeable inflows into debt mutual funds helped the country8217;s top six fund houses buck the slowdown in the MF industry and make sizeable profits during the last financial year,despite sustained outflows in equity schemes. This is even as most smaller fund houses and even mid-sized asset management companies AMCs struggled to turn in a profit.
Inflows into debt funds,especially medium- to long-term bond funds boosted revenues of the top fund houses, said Dhruva Chatterji,senior investment consultant,Morningstar India. In FY12,the industry saw sizeable inflows into fixed maturity plans and some of this money shifted to income and duration bond funds in FY13.
While debt funds typically don8217;t generate as much revenue as equity funds,the inflows into debt funds last year helped provide a buffer at a time when equity fund inflows were slow. Equity is where revenues come from,but equity has not been in favour for a while now. The next best category for generating revenues is income funds, said Deepak Chatterjee,MD amp; CEO,SBI MF.
Fund houses take in asset management fees of anywhere between 50-100 bps on income funds compared with 100-150 bps for equity schemes,according to experts.
ICICI Prudential MF R16,491 crore,Birla Sun Life MF R16,041 crore,SBI MF R12,504 crore and HDFC MF R9,695 crore were among the fund houses that saw a sizeable increase in their debt asset base in FY13 over the year-ago period. The top 10 fund houses collectively added R1.06 lakh crore in debt assets compared with R37,507 crore added by the remaining 33 fund houses in FY13. Most of the debt categories performed well in FY13,with average category returns ranging from 8.9 to 11.06.
However,not everyone has benefited from the rise in debt AUMs. For instance,Kotak Mahindra AMC saw its net profit decline 45 to R12 crore in FY13 despite seeing a debt asset addition of R9,654 crore. Among other listed players,Religare Invesco MF slipped into the red posting a loss of R5 crore compared with profits of R0.3 crore in FY12 due to an increase in transaction costs after its deal with Invesco. Lamp;T MF8217;s net losses also more than doubled to R58.5 crore in FY13 compared with R25.3 crore in FY12. The chief reason for this could be the acquisition of Fidelity MF in April last year as part of which Lamp;T MF may have taken on accumulated losses of Fidelity onto its balance sheet,reckon experts.
Interestingly,while all of the top 10 fund houses posted sizeable profits in FY13,only one among the bottom 10 AMCs managed to remain profitable. According to Chatterji,the industry is seeing low retail interest in equity funds at present and the challenge will be to grow the equity asset base in FY14.
The diverse trends within the industry may continue as experts say that bigger players will continue to gain traction while smaller players languish. Investors are now moving to brands that they trust and schemes that have delivered consistent returns and have a good track record. In uncertain times like these,the trend is likely to continue going forward and the challenge will be to continue to deliver consistent returns, said Nimesh Shah,MD amp; CEO,ICICI Prudential AMC.
The assets under management of the MF industry grew to R7.01 lakh crore at the end of FY13 from R5.87 lakh crore over the year-ago period. MF equity schemes saw inflows in only two months in FY13,with net outflows for the year totalling R12,931 crore. Since the entry load was done away with in August 2009,equity schemes have seen inflows in only 14 months.
