Record outflows take toll on mutual funds in March: CRISIL

Record outflows dampened sentiments in the mutual fund industry in March 2010 with month-end assets under management (AUM) of mutual funds falling by 20 per cent over the month. The industry witnessed highest ever monthly outflows to the tune of Rs 1.6 lakh crore in March 2010.

These redemptions have now become typical of every financial quarter end when mutual funds witness withdrawals by corporates and banks. While corporates withdraw their short term mutual fund investments (mainly in ultra-short term debt schemes) to meet their advance tax payments, banks prune mutual fund investments every financial quarter end (this time a financial year end as well) to meet balance sheet requirements on capital adequacy. At the same time it is expected that a lot of these outflows should come back into mutual funds in April as has been witnessed in the past several quarters.

According to Krishnan Sitaraman, Director, CRISIL, “During the current quarter, banks’ investments in mutual funds also came down as credit demand picked up with banks lending a record Rs 1.16 trillion in the last fortnight of March 2010. As a result, banks’ investments in mutual funds reduced by nearly 50 per cent over the month from Rs 1.09 lakh crore as of end February 2010 to Rs 0.56 lakh crore as of end March 2010.”

The month-on-month fall in average AUM was much lower though at 4.3 per cent in March to Rs 7.49 lakh crore (including fund of funds) as the outflows were witnessed only on the last few days of the month. Over the year, mutual funds assets have grown by around 50 per cent to Rs 6.14 lakh crore in March 2010 mainly on account of inflows into ultra short term income funds and mark to market gains in equity funds.

Another observation is that gold exchange traded funds have seen a steady demand over the year with their AUM more than doubling from Rs 736 crore in March 2009 to Rs 1,590 crore in March 2010. An analysis of equity schemes’ portfolios as of February 2010 revealed that banks continued to be the most preferred sector for mutual funds, accounting for almost 14 per cent share of equity fund assets. The IT sector was a distant second with a share of around 7 per cent. Reliance Industries remained the most popular stock, with a 4 per cent exposure of equity assets, closely followed by ICICI Bank (3.8 per cent exposure) and Infosys Technologies (2.9 per cent exposure).

All CRISIL Fund indices finished higher in March with CRISIL Fund~eX gaining the most among indices analysed. CRISIL Fund~eX (tracks diversified equity funds) surged 6.2 per cent following the rally in equity markets while CRISIL Fund~bX (tracks balanced funds) rose 4.9 per cent.

Among debt oriented indices, CRISIL MIPEX (benchmark for Monthly Income Plans) ended 1.7 per cent higher. CRISIL STBEX (benchmark for Short-Term Bond Funds) gained 0.7 per cent and CRISIL Fund-dX (tracks Long-Term Bond Funds) rose 0.5 per cent over the past month. CRISIL MF~Gilt Index (tracks gilt funds) yielded 0.5 per cent returns in March while CRISIL~LX (tracks liquid funds) gained 0.34 per cent.