Record outflows dampened sentiments in the mutual fund industry in March 2010 with month-end assets under management (AUM) of mutual funds falling 20% over the month. The industry witnessed the highest-ever monthly outflows to the tune of Rs 1,60,000 crore in March 2010. These redemptions have now become typical of every financial quarter end when mutual funds witness withdrawals by corporates and banks.
While corporates withdraw their short-term mutual fund investments (mainly in ultra-short-term debt schemes) to meet their advance tax payments, banks prune mutual fund investments every financial quarter end (this time a financial year end as well) to meet balance sheet requirements on capital adequacy. At the same time, it is expected that a lot of these outflows should come back into mutual funds in April, as has been witnessed in the past several quarters, said a Crisil research.
According to Crisil director Krishnan Sitaraman, ?During the current quarter, banks? investments in mutual funds also came down as credit demand picked up with banks lending a record Rs 1,16,000 crore in the last fortnight of March 2010. As a result, banks? investments in mutual funds reduced by nearly 50% over the month from Rs 1,09,000 crore as of February end to Rs 56,000 crore as of March end 2010.?
The month-on-month fall in average AUM was much lower though at 4.3% in March to Rs 7,49,000 crore (including fund of funds) as the outflows were witnessed only on the last few days of the month. Over the year, mutual funds assets have grown 50% to Rs 6,14,000 crore in March, mainly on account of inflows into ultra-short-term income funds and mark-to-market gains in equity funds. Another observation is that gold ETFs have seen a steady demand over the year with their AUM more than doubling from Rs 736 crore in March 2009 to Rs1,590 crore in March.
An analysis of equity schemes? portfolios as of February revealed that banks continue to be the most preferred sector for mutual funds, accounting for almost 14% share of equity fund assets. The IT sector was a distant second with a share of around 7%. Reliance Industries remained the most popular stock, with a 4% exposure of equity assets, closely followed by ICICI Bank (3.8% exposure) and Infosys Technologies (2.9% exposure).