Mutual Fund Industry Update December 2009

Regulatory Revisions

Revised Guidelines for change of Mutual Fund Distributor

• In order to avoid hardships faced by investors for changing the existing mutual fund distributor, SEBI reinforced that no NOC is required if the customer has signed the intent of change of distributor.
• Majority of AMCs are advised by SEBI to ensure compliance with respect to regulation for change of distributor. AMCs are now required to act on the instruction/intent of investor for the change of his/her existing distributor without forcing the investor to present NO Objection Certificate (NOC) to the AMC.

AMCs required to comply with the SEBI’s circular on Anti Money Laundering (AML)

• All Asset Management Companies are advised by SEBI to confirm if all the investor related documents (KYC, POA etc) are maintained with them. If not, then trustees of the mutual funds are advised to ensure the following:
  • No further commission/brokerage shall be paid to the distributor till he maintains and submits the complete investor’s documentation with the AMC.
  • Take immediate steps to obtain all supporting documents in respect of past transactions.
• In addition, SEBI requires Trustee of the mutual fund house to confirm that steps have been taken to address the issues discussed above.

MUTUAL FUND INDUSTRY TRENDS

Online Trading Platform for Mutual Fund Houses

• NSE and BSE have recently launched an online trading platform for mutual fund schemes. This allows buying and selling of mutual fund schemes online where an investor can maintain his/her mutual fund portfolio under a single statement
• Though online trading platform offer flexibility to investors but this may not act cost efficient for investors who are not holding any demat accounts

Portfolio Management Services (PMS) – Again a Favoured Product of AMCs

• Asset Management Companies are launching/reviving their PMS offering in addition to the their core offering i.e mutual funds because of the following:
  • To provide exclusive value added services to their clients.
  • To provide better remuneration to their distributors as PMS offers the scope of better pricing to the AMCs.
• Many new entrants in the industry such as Canara Robeco, Shinsei Asset Management and Axis Asset Management have plans to add Portfolio Management Services in their existing product portfolio.

Mutual Fund Asset Under Management (AUM) increases in November 2009

• AUM of the mutual fund industry has increased by 68% to reach 807,546 cr in November 2009. Majority of investors stayed away from equities but inflow is seen in fixed income plans. Investors preferred to book profits in equity schemes and park the gains in debt schemes considering the volatility in equity markets.
• Out of 37 existing Asset Management Companies, 30 AMCs have seen increase in their AUM in November 09. Reliance continues to be the market leader with AUM of Rs 1,22,252 crore (approx) followed by HDFC and ICICI Prudential AMC.

Sectoral Picks of Fund Managers

• Banking & Financial Services, Oil & Gas, Engineering, Pharmaceutical and IT sector are the top 5 sectors where approx 57.1% of total net assets of the various fund houses are invested.
• The Fund managers have taken minimum exposure in Consumer Non Durable, Real Estate and Consumer Durable sector in this quarter.
• Reliance, HDFC and UTI have taken the maximum exposure in Banking & Financial Services totalling to approx Rs 14,978 cr and top 3 contributors to the Oil & Gas sector are Reliance, HDFC and UTI totaling Rs 9,188 cr.