Regulatory Revisions

Systems Audit of Mutual Fund Companies to be conducted by CISA/CISM qualified auditors

• As per latest SEBI’s circular, comprehensive system audit of mutual fund companies need to be conducted that includes examining integration of front office and back office systems, fund accounting systems for NAV calculation, administrative and servicing systems for customer service, funds flow process etc.
• SEBI has further advised AMCs to get the systems audit conducted once in 2 years and place the Systems Audit Report and compliance status before the Trustees of the mutual fund
• The objective of issuance of this circular is to protect the investor’s interest, and to develop and promote the securities market

Statement of Additional Information (SAI) and Scheme Information Document (SID) to be made available on SEBI's Website

• With a view to make SEBI’s website as a central database for SAI and SID, AMCs are required to submit:
  • A softcopy of SAI within 7 days of issuance of this circular and;
  • A softcopy of SID alongwith printed/final copy within two working days prior to launch of the scheme
• AMC is also required to submit an undertaking certifying that the information contained in the soft copy of SAI and SID to be uploaded on SEBI’s website is current and relevant

MUTUAL FUND INDUSTRY TRENDS

Banks may impose internal limits on Mutual Fund Exposure

• • Banks are collectively contributing approx Rs 1,00,000 cr in ultra short term mutual fund schemes. On the other end, the same money is being borrowed by banks from overnight markets* for their lending business
• • Considering the cyclical nature of such transactions, any bulk withdrawal by banks from such mutual fund schemes may impose concerns for both these entities.
• • Therefore, RBI Governor has indicated that lenders should improve governance norms related to investment in mutual funds

*Overnight markets: Where financial entities borrow and lend money on overnight basis

Domestic Institutions turned net sellers in October 2009

• The stock market inflows in October 2009 were mainly contributed by Foreign Institutional Investors (FIIs). On the other hand, domestic institutions and retail investors were the net sellers this month
• The recent market upside post elections was mainly contributed by Institutional Investors and not the retail investors. Infact, retail investors were the net sellers (Rs 13,355 cr) for this period

Mutual Fund Asset Under Management (AUM) moves up in October 2009

• Marginal increase is seen in the asset under management (AUM) of Indian mutual fund industry in October 2009 when the current AUM stands at 7,52,209 crore. This growth is mainly contributed by the significant inflows in the ultra short term debt schemes. Many mutual fund schemes are sitting on cash in anticipation of stock market correction
• Out of 35 existing Asset Management Companies, 24 AMCs have seen increase in their AUM in October 09. Reliance continues to be the market leader with AUM of Rs 1,16,782 crore (approx) followed by HDFC and ICICI Prudential AMC

Sectoral Picks of Fund Managers

• Banking and Financial Services, Oil and Gas, Engineering, Pharmaceutical and IT sector are the top 5 sectors where approx 57.3% 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 and Financial Services totalling to approx Rs 15,231 cr and top 3 contributors to the Oil and Gas sector are Reliance, SBI and UTI totaling Rs 9,715 cr