In an irony of sorts, foreign players have begun cashing out in a big way from the Indian mutual fund industry when its total asset base is fast nearing Rs 15-lakh crore mark and fund houses are upbeat about future growth prospects with retail investors joining the party.
As the year 2015 draws to a close, data shows that total Asset Under Management (AUM) of the mutual fund industry crossed Rs 13.5 lakh crore mark for the first time, while more than 50 lakh new investor accounts have been added this year.
The performance stands out even better when seen in the context of the equities market not performing so well.
The industry is hopeful of trebling its AUM to around Rs 40 trillion over the next three years.
Notwithstanding the record show, a number of foreign funds have decided this year to pack up and at least four MNC fund houses — US giant Goldman Sachs, Deutsche Bank Group, Nomura and KBC — encashed their holdings.
While Goldman sold its mutual fund business here to Reliance MF for Rs 243 crore, Deutsche Bank Group sold its asset management business here to Pramerica Asset Managers.
Japan’s Nomura decided to call off its JV with LIC and sold 19.3 per cent of its 35 per cent stake in LIC-Nomura MF to LIC Housing Finance. Belgian fund KBC sold its 49 per cent stake in Union-KBC AMC to its domestic partner Union Bank.
In contrast, domestic player Religare sold its 51 per cent stake in Religare Invesco AMC to foreign partner Invesco, while Nippon upped its stake to 49 per cent in Reliance MF.
Summing up the year, SBI Mutual Fund managing director and CEO Dinesh Khara said, “We have witnessed volatility in equity markets in 2015. At the same time, we have also seen the financialisation of savings in the year.
“Another positive was that both institutional as well as domestic investors have begun to participate in the market.”
The growth came despite the absence of any major push from regulators or the government, except for the salutary impact of the EPFO beginning to invest in the equities market during the year through Exchange Traded Funds (ETF), a mutual fund industry product.
As per the industry body Amfi, 4-7 lakh retail folios are being added to the industry every month.
“In spite of the equities market (which shed 17 per cent from its mid-March peak of 30,034 points) not doing well all through 2015, we do see the inflows happening in the systemic investment plans (SIPs) and through the retail segment,” the newly-appointed Amfi chief executive CVR Rajendran said.
“In the past, normally the retail investors entered the market only when the equity market peaked, or when it went down, but mostly exits with heavy losses. But 2015 was different as retail investors entered MFs throughout the year as the equities disappointed throughout the year,” he added.
“We have learnt that for every fall in the market, retail investors are coming now. So, whenever the market goes up possibly with the forthcoming Budget, they will get good returns.
“So, we feel that the retail investors are coming at a very right time,” he said, adding that investors from small towns (beyond the top 15 cities) that constitute the lion’s share of the MF market, also did well during the year.
Another reason is both balanced and fixed income funds did well, helping offset the poor show by equities, he noted.
Peerless Funds Management’s managing director and chief executive Rajiv Shastri said, “As domestic investors continued to invest in equities through MFs, 2015 turned out to be a stellar year for the industry with equity folios growing at 12 per cent and AUM growing at a similar rate adjusted for market appreciation.”
He further added that the year 2015 saw a sharp divergence between the actions of domestic investors and FPIs.
“While FPIs saw the market only as a part of various groups (emerging markets or BRICS) and failed to see that we are uniquely poised to gain from low commodity prices, domestic investors intuitively understood this benefit,” he added.
A major boost came from the decision of the EPFO to increase its play in the equity market. However, the timing was not right as when they started investing, the equity funds were not doing well, forcing it to rethink its plan to invest Rs 6,000 crore by the fiscal-end.
Amfi is also working on the recommendations given by a panel headed by the former finance secretary Sumit Bose which has said fund houses can be allowed to manage those funds currently invested by insurers and pension funds.
One major disappointment came from JP Morgan AMC which was forced to suspend redemption of its investment in the troubled Amtek Auto for more than a quarter and finally forced its investors to redeem at a steep 15 per cent discount.
The fund house was forced to exit the segregated assets — JP Morgan India Short Term Income Fund and JPMorgan India Treasury Fund — in full in early December.
Going ahead, the MF industry is banking on the poor performance of other assets classes like gold and real estate to continue to march ahead and they believe it will help them see more retail participation in the next year.
“Going forward we are likely to see the falling interest rate which will further investors in the bond funds being run by various fund houses,” SBI MF’s Khara said.
Amfi’s Rajendran hopes that GST implementation and the falling interest rates coupled with low commodities prices can keep driving investors to the various funds.
“Going forward GST implementing can help the market outperform, and give very good returns to investors,” he said.
“We hope the industry grows at a CAGR of 25 per cent and grow threefolds to around Rs 40 trillion over next three years from the present Rs 13.5 trillion,” he added.
According to Birla Sun Life AMC chief executive A Balasubramanian, “As asset classes like gold and real estate are likely to be tepid near term, we hope to see more retail participation next year. Another trigger is likely to be the fact that bank deposit rates are falling and hence small investors are likely to rely more on the industry next year.”
Sebi asking funds to uniformly cap their upfront fees at 100 bps from next January will also be booster.