Mutual Fund Industry Update August 2009

Regulatory Revisions

Lower Filing Fees for Mutual Funds - SEBI

• Securities Exchange Board of India (SEBI) clarified that the revised filing fee for offer documents of mutual funds will be applicable to those schemes registered with the market regulator on or after 1 July.
• The filing fee for offer documents of mutual funds has been reduced from 0.005% to 0.002% of the amount raised in the new fund offer, subject to a minimum of Rs1 lakh and a maximum of Rs50 lakh.
• As per the revised SEBI regulation, the revised filing fee would be applicable to those schemes whose scheme information document (SID)has been filed with SEBI on or after 1st July 2009

MUTUAL FUND INDUSTRY TRENDS

Scheme Mergers by various Fund Houses

• In the recent past, UTI, ING and JM Mutual Fund have merged few of their schemes with small AUM into larger schemes. Following the trend, Kotak, Principal and Fidelity Mutual Fund merged some of their small schemes into their large schemes in the month of July.
• Such mergers may result in lesser overhead cost and better management of schemes. They may also result in reduction of number of duplicate funds within the same asset management company
• Kotak Technology fund, Kotak MNC and Kotak Global India being merged with Kotak Opportunities; while Principal Junior Cap was merged with Principal Emerging Blue chip fund. These are the examples of few recent mergers in the industry

Increasing Exit Load - An impact of No Entry Load Structure

• The exit load and minimum time period of stay in the fund has been increased by the fund houses, as an impact of entry load removal from the mutual fund schemes
• Earlier, the fund houses used to charge 0.5% - 1% if the scheme is redeemed before 1 year of investment. But, post the removal of entry load from mutual fund schemes, majority of fund houses have increased the exit load rate up to 1%. The minimum time period of stay in the fund for avoidance of exit load is also increased to 2-3 years
• Though such a measure may hamper the ease of short term liquidity for an investor, but will help in emphasizing the long term investment philosophy

Increasing Mutual Fund Asset Under Management (AUM) in July 2009

• The AUM of the Indian mutual fund industry has increased by 24% in July 09 to reach Rs 7.2 lac crore mainly due to the surging stock market and launch of new fund offers by various asset management companies
• Out of 35 existing Asset Management Companies, 24 AMCs have seen increase in their AUM in June 09. Reliance continues to be the market leader with AUM of Rs 1,08,334 crore (approx) followed by HDFC and ICICI Prudential AMC
• However, Morgan Stanley MF, JM MF, HSBC MF, ING MF, Mirae MF, Sahara MF etc are few of the fund houses whose AUM has been declining on a month-on-month basis

Many Mutual Fund Companies eying to launch Gold Funds

• IDFC, Reliance, Sundaram BNP Paribas, UTI and Religare MF have sought approvals from SEBI to start gold funds. Majority of these schemes will invest in securities of mining and jewellery companies. Few of theses schemes may also act as feeder funds to existing exchange-traded funds.
• Since the investors are not allowed to invest in Gold ETFs without a demat account, such a move will enable more retail participation in Gold Fund

Sectoral Picks of Fund Managers

• Banking & Financial Services, Oil & Gas, Engineering, Cement and IT sector are the top 5 sectors where approx 56.6% of total net assets of the various fund houses are invested
• The Fund manager has taken minimum exposure in Tobacco, Real Estate and Consumer Durable sector this quarter
• Reliance, HDFC and UTI have taken the maximum exposure in Banking & Financial Services totalling to approx Rs 12,149 cr and top 3 contributors to the engineering sector are Reliance, SBI and UTI totaling Rs 7,831 cr