The Hindu Business Line : MF assets down by Rs 6,000 cr in March

THE "March" phenomenon has shrunk the mutual fund industry by about Rs 6,000 crore. The total assets under management stood at Rs 1.39 lakh crore at the end of the month against Rs 1.45 crore registered in February 2004.

Industry players attribute this to both corporate money withdrawals for payments of advance tax and balance sheet presentation, as well as dividend stripping.

While the Rs 6,000 crore is less than last year's Rs 8,000 crore, mutual funds had anticipated a better March this year.

It was believed that mutual fund investments were respectable enough to be shown in the balance sheet and only banks would be forced to redeem in order to show healthy capital adequacy ratios.

"Index funds bear the most of the dividend stripping phenomenon. Though other funds are also prone to the phenomenon, there is usually an exposure risk associated with most of these. This risk is minimal in index funds," said a fund manager.

The impact on redemptions is significant in liquid funds. Total redemptions in this category in March amounted to over Rs 55,000 crore. However, there were also significant sales by mutual funds in this category in March.

"Assuming that the redemptions were largely for advance taxes and other reasons, it would be a cause to worry if this money does not come back into circulation over the next couple of months," said Mr Ashim Syal, Chief Investment Officer, ING Vysya Mutual Fund.

According to Mr Rajan Krishnan, Head (Sales), Principal Asset Management Company, much of this money has already come back into funds in the last 10 days.

According to distributors, the market volatility in March led to an increase in redemptions of growth funds as well. This figure stood at Rs 2,151 crore, against Rs 1,690 crore in February.

Distributors said that retail customers are taking stock of their mutual fund investments and seeking to consolidate investments.

"April is the time for taking stock and a lot of customers are asking to move their funds into two or three funds that have been performing well, from the current spread of 6-7 schemes," said a retail-based distributor.

"This quarter is very critical and we will be monitoring inflows very closely. The recent negative stories about the industry are likely to have some impact in the industry inflows. The numbers recorded in April and May would help clarify the real reasons for the Rs 6,000 crore shrink," he added.