Tough year for Mutual Funds

Still adjusting to entry load ban; niche segmentation a new and growing trend.

The year 2010 was tough for domestic mutual funds. Fund houses struggled to get some relief from the continuous outflow but in vain. However, they’re optimistic, given the huge untapped market.

Though there were no major regulatory changes, the industry continued to be hit by the market regulator’s step over a year earlier, of banning entry load for MF equity schemes. Experts had anticipated the changes would be assimilated and the market would return to normalcy in four to six months. However, even after over five quarters of the new regime, fund houses continued to find it hard to address the issue and add assets.

Data with the Securities and Exchange Board of India show the average assets under management (AAUM) was Rs 6,73,186 crore on November 30. This is a decline of over 15 per cent when compared with the AAUM as on December 2009.

Equity schemes were the most hit. It was a year of redemption for them. There was inflow of fresh money, too, but investors in the boom before the market crashed chose to book profits and move out.

The change during the year was substantial reduction in New Fund Offers (NFOs). During the boom period in 2007-08, the industry came up with 55 NFOs, which garnered about Rs 43,000 crore. This year, the number dipped to 16, which could manage to collect a mere Rs 2,738 crore

Fund players said though this year’s markets were at almost the same level as in 2008, the sales of equity MFs could not keep pace. “During that time, NFOs helped the industry garner a much greater sum. On Thursday, NFOs are no more in fashion, as they are incapable of raising funds,” said the chief investment officer of a top fund house.

CEOs admit intense competition but add there is huge scope, as the larger part of the potential market has not been touched or is under-penetrated. After the top eight cities, the other tier-I & tier-II cities are now on the radar of fund houses.

Smaller fund houses and entrants in the market are positioning themselves as niche players. Instead of venturing into all the asset classes, they are specialising in segments, seeing the market getting crowed with seasonal products.

“Transparency, simple but strong and different products, and value addition for investors are the strategies which fund houses are concentrating on,” said the executive vice president of a large distribution & broking firm.

Foreign-based firms having presence in India are in the process of bringing their global products. “Fund houses are more and more investor-focused and take measures to keep investors comfortable by not confusing them,” he adds.