After the captains of industry and public sector bankers, it?s the turn of the mutual fund (MF) industry to meet with the government?s economic brass. At the top of the agenda at the scheduled meeting with finance minister P Chidambaram on Tuesday are measures to arrest rapidly depleting assets under management (AUM).
Sources in the MF industry confirmed that a delegation–including officials from top fund houses like Reliance Mutual Fund, UTI Mutual Fund and HDFC Mutual Fund–along with Association of Mutual Funds in India (Amfi) chairman AP Kurian, would meet Chidambaram on Tuesday morning.
An official from a leading fund house who is part of the delegation, on condition of anonymity, revealed, ?We have short-listed several issues that need to be addressed urgently. Investor redemption pressure and liquidity concerns have impacted the MF industry severely. After meeting the FM, we might have some solutions.?
According to the latest Amfi data, fund houses have seen a precipitous 35% decline in AUM. Reliance Mutual Fund, India?s largest fund house, has seen its average AUM fall to Rs 71,093.70 crore?a decline of Rs 15,400 crore, or 17.80%?over September numbers. The second-largest player, HDFC Mutual Fund, saw a 12.53% fall in AUM in October, taking the figure to Rs 45,479.37 crore.
Value Research Online CEO Dhirendra Kumar said, ?In October, we saw a raft of problems in global markets. The Sensex was down by over 23% and we also witnessed redemption pressure on various schemes. What we saw last month was historic; it has seriously impacted the Indian MF industry.?
Kumar went on to add, ?There is a lot of panic in the market. In the current situation, we don?t think things are going to improve quickly. We will see further AUM erosion in coming months and it will take time for conditions to improve.? As an asset management company gets 2-2.5% of AUM to run an existing fund, any erosion in AUM could lead to cost-cutting and even laying off employees.
Fund managers also expect to be quizzed by the finance minister about disclosures in fixed maturity plans. The investment pattern has been skewed towards the non-banking financial services sector and many schemes have been lending to select companies. ?This could be detrimental as the risks are not properly apportioned,? says a senior executive with a fund house that does not have such exposure.