Saturday, March 7, 2009

Not all is rosy for MF industry!

The mutual fund industry is yet to be back on its feet after the carnage in October last year and despite a rise in assets under management over the last few months, things look bleak for the industry.
In such a scenario, what are new players who planned to enter the AMC business, doing? Are they going ahead with their plans albeit cautiously or can we expect delays?
Although the Indian mutual fund industry regained the Rs 5,00,000 crore mark in February with total assets under management growing by nearly 9 per cent during the month, things are far from rosy for the industry.
The players planning to enter the mutual fund business are also feeling the heat now and it looks like their plans may now have to be delayed or even in some cases shelved.
Sources in the industry believe that the plans to foray into Shinsei, Axis Bank, Goldman Sachs, DLF and HDIL's mutual fund may be delayed despite getting regulatory clearance.
Players such as ASK group, Motilal Oswal and India Infoline are yet to get the regulator's final approval and it could take another year for them to launch operations.
Sammer Kamdar, CEO of Proposed AMC Business at ASK, said, "We understand there is a lot of stress in system. A lot of people are delaying plans, but at ASK we continue our quest for in principle approval.”
Now, with even existing players finding it difficult to grow, is it a good idea for new players to get into the market or should they buy time instead?
Nitin Rakesh, CEO of Motilal Oswal AMC, said, "I won’t be surprised if we hear some announcement of plans being deferred. Even the regulator is taking a hard look at things and understandably, so we are still very much interested."
Meanwhile, it will be clearly tough for these players to get a decent market share given the tough business environment.
So, it makes sense to wait for better conditions before launching operations but given the poor performance of some funds that have launched recently, this wait is likely to be a very long one.

Now, ETFs facing redemption heat

Exchange-traded funds (ETFs) have emerged as the latest category of mutual funds to have felt the heat of redemptions, with investors having withdrawn over Rs 1,000 crore from October 2008 to January-end this year, according to data available with the Association of Mutual Funds in India (Amfi).
At the end of September 2008, the AAUM of ETFs were Rs 3,369 crore. This fell by 56 per cent to Rs 1,461 crore by January-end this year. In comparison, the AAUM of equity funds fell from Rs 129,699 crore to Rs 93,828 crore in the same period – a fall 27 per cent.
Redemptions in ETFs are a rare sight because the units are traded on the stock exchanges, implying that for every seller, there obviously has to be a corresponding buyer.
A fund house can step in and purchase the units to create liquidity for the fund, but only in a situation where buyers are absent. And when the fund house buys back such units, the transaction gets classified as a ‘redemption’.
According to sources, a lot of high networth individuals (HNIs) and institutions who trade in ETFs had offloaded these funds in the last few months. Industry experts attributed this huge redemption pressure to the worsening equity markets.
“Since the underlying assets were in a bad shape, people realised that it was better to switch to debt funds rather than staying invested in equity ETFs,” India Infoline’s Head (Distribution) Vinay Shukla said.
Benchmark Mutual Fund, a fund house which specialises in ETFs, had seen its average assets under management (AAUM) shrink from Rs 3,904 crore at September-end 2008 to Rs 1,903 by January-end this year. In fact, its assets fell further to Rs 1,475 crore by the end of last month.
While Benchmark refused to comment on the development, distributors pointed out that net assets of several of its schemes have halved in value. Sample this: Banking Bees, which had an AAUM of Rs 2,744 crore in September 2008, was left with Rs 559 crore by January.

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