Outflows from existing schemes continue; Axis’ equity fund spurs net inflows   

February 15, 2010

 After a continuous drain of five months, equity mutual funds (MFs) have recorded positive inflows. Axis Mutual Fund, supported by its banking channel, contributed 90% to these net inflows. Existing schemes still recorded an outflow. However, new fund offers (NFOs), that too by a bank-sponsored fund, may not be available for February, raising doubts about the sustainability of the net inflows for equity MFs.

During January 2010, equity MFs have managed to record a net inflow of Rs980 crore compared to a net outflow of Rs2,185 crore as on December 2009, according to data released by the Association of Mutual Funds in India (AMFI). However, a major chunk of the net inflow is made up from contribution by Axis Mutual Fund’s equity scheme, which was launched on 19^th January and has collected around Rs905 crore so far through its powerful banking channel of 1,000 branches.

Rajiv Anand, managing director and chief executive, Axis Mutual Fund, has been quoted in the Economic Times as saying that “the new regulation has not impacted us gravely as is evident from the initial collections of Rs905 crore from our first equity offering. The primary reason we were able to reach out to investors is that we are part of a large well-recognised and well-respected financial services group. Axis Bank today has a reach of over 500 cities through over 1,000 branches and being part of such a large group, we are in a position to leverage Axis Bank’s brand equity and its distribution network.”

However, as our separate article points out, bank customers can be more easily persuaded to invest in a bank-sponsored NFO, thanks to existing relationships. Axis Bank had gone all out to collect money for its fund, setting steep targets for its branch managers. It had some strength to sidestep the impact of the banning of entry loads. Indeed, bank-sponsored equity funds will be able to replicate Axis’s success. To that extent, the playing field is uneven.

January saw the launch of three new open-ended equity funds like Axis Equity Fund, Fidelity India Value Fund and Sundaram BNP Paribas Select Thematic Funds—PSU Opportunities.

Equity funds comprised 22% (Rs1.70 lakh crore) of the total Rs7.60 lakh crore assets under management (AUM) as on January 2010 compared to 26% (Rs1.70 lakh crore) of total Rs6.70 lakh crore as on December 2009. Total sales jumped 14% at Rs8.80 lakh crore for the month of January compared to Rs7.80 lakh crore in December 2009 while average AUM fell 4% at Rs7.60 lakh crore (as on January 2010) from Rs7.90 lakh crore in December 2009.

“Due to high volatility in the domestic market, investors kept their hands off equity funds while debt fund categories like gilt, bond and liquid funds saw (a) massive downward move due to expectation of rate hike from the Reserve Bank of India,” said Sharekhan Ltd in a report.

Deep correction in the stock markets along with less fund deployment by the banks in mutual funds dragged the AUM down by 4.14% in January 2010. During the month, fund managers made net total sales worth Rs1,340.60 crore and made debt market investments to the tune of Rs31,231.80 crore.

Sharekhan said that the domestic equity-oriented MFs are sitting on a comfortable cash reserve of Rs11,941 crore that is waiting to be deployed in the market. The absolute cash and equivalent proportion of all equity funds rose by 7% in January, it added.

During the month, a total of 23 mutual fund houses (AMCs) saw their AUMs falling where 14 fund houses saw their AUMs rise. Baroda Pioneer Mutual Fund showed an exceptional growth during the month once again with the AUM rising to a whopping Rs3,694.30 crore in January 2010 from a meagre Rs2,984.10 crore in December 2009. Sahara Mutual Fund’s AUM for the month grew by 21.9% over the previous month. Edelweiss Mutual Fund saw its AUM for the month falling the most—down 14.3%—followed by Religare Mutual Fund, which saw its AUM falling by 12.9% over the previous month. Though Reliance Mutual Fund continues to hold the highest AUM, it fell by 2.3% in the month. HDFC Mutual Fund, growing at a fast pace, retained the second slot with AUM of Rs94,797 crore. Among the top ten fund houses, Kotak Mahindra Mutual Fund saw its AUM fall the most by Rs4,620.42 crore. — Debashis Basu