New Amfi disclosure norms help curb volatility but MF assets continue slide

Retail penetration still remains low, focus on institutional funds continues.

When the Association of Mutual Funds in India (Amfi) declared in September last year that disclosure of the industry’s average assets under management (AAUM) would be disclosed on a quarterly basis instead of monthly, the objective was to discourage the ‘unhealthy’ practice of a race for asset gathering among fund houses and to increase retail participation.

Three quarters since then, have the new disclosure norms helped the industry?

On AAUM, the mutual fund industry has been able to curb the volatility, as the duration stretcheds over 90 days as against 30 days earlier. The recent statistics as of June 30 show average assets are showing a steady increase in the last three quarters, as it rose 4.23 per cent from Rs 7.13 lakh crore in September-end to Rs 7.43 lakh crore now.
 

ASSET TREND (Since new quarterly disclosures came into existence)
Month	AUM	Equity AUM	Average AUM	Equity folios
Sep, 2010	6,57,313	1,85,484	7,13,290	3,94,39,302
Dec, 2010	6,26,314	1,81,224	6,75,377	NA
Mar, 2011	5,92,250	1,69,754	7,00,538	3,92,90,289
Jun, 2011	6,73,176	1,68,966	7,43,502	3,88,88,309
AUM in Rs crore                                                                         Source: Amfi & Sebi

But, considering the actual assets under management, it is a rise of only 2.41 per cent. The AUM at the end of June stood at Rs 6.73 lakh crore compared with Rs 6.57 lakh crore. Moreover, if the latest trend in AUM is looked at, there is a sharp fall of 14 per cent or Rs 1.12 lakh crore in the last two months.

“If one looks at the average assets, scenario certainly looks positive. But things are different when one goes deep,” says chief executive officer (CEO) of a mid-sized fund house who did not wish to be named. “The new disclosure norms have nothing to do with investors. The intent was to move away from the game of asset gathering to a more orderly arrangement,” he adds. The aim of the industry is to increase retail participation, which seems to be going nowhere despite several investors’ awareness programmes by the industry players.

Consider this: Equity assets are largely dominated by retail customers. In September 2010, equity assets with the industry was Rs 1.85 lakh crore, 28 per cent of the industry’s entire assets. However, the last three quarters witnessed 9 per cent drop in equity assets to Rs 1.68 lakh crore. At the same time, the overall equity assets constituted 25 per cent of the industry’s assets at June-end, a drop of 3 per cent compared to what it was before the new disclosure norms came into existence.

“There is no drastic benefit which the industry has seen due to the new disclosure. Though the undue competition for assets gathering has decreased to a significant extent, it does not mean players are not tracking others’ AUM on a regular basis. We do have our internal assessments regarding our competitors’ AUM,” elaborates another CEO of one of the top 10 fund houses, who also spoke on condition of anonymity.

Fund managers say the concept that prolonging asset disclosures would help the industry focus on retail, itself a “flawed concept”. “How can it make industry concentrate on retail?” asks an industry CEO. Agrees the chief marketing officer of a large fund house. “Industry’s focus on institutional funds has neither come down nor has it increased on retail. Rather, why should it change? Why should mutual funds be for the retail investors only?”

The Securities and Exchange Board of India, on several occasions, has pointed out the need for MFs to go more into retail and penetrate deep besides the top six cities of the country.

In FY11, the industry had lost 1.8 million equity folios. According to the latest available folio statistics till April, the equity category saw a decline of over 400,000 folios. Industry experts say investment through the systematic money plan route is still coming however, retail investment through lump-sum route has taken a pause for long. “Though the current market scenario is attractive for retail investors to build assets with a long-term horizon, they are staying away,” says the chief investment officer of a mid-sized fund house which focuses on equity schemes.