Asset base of MFs declines 5.3% in Q3

The top five mutual fund houses in the country have reported a combined decline of around Rs 26,753 crore in assets under management (AUM) for the quarter ended December 2010.

Tight liquidity conditions and higher exposure to the debt markets seem to have cost the mutual fund houses dear as the industry saw a 5.3 per cent decline in its average AUM in the quarter ended December 2010, said fund officials.

The top five fund houses accounted for almost 70 per cent of the total drop in average AUM of the mutual fund industry, data on the Association of Mutual Funds of India Web site showed.

From mid-November to the end December 2010, the Sensex has returned almost one per cent (0.98 per cent).

(This is the first quarterly AUM report [October–December] from the industry and the comparison of figures is against the monthly average AUM reported for September.)

The average assets under management of the industry stood at Rs 6.75 lakh crore for the quarter ended December 31, 2010, down by Rs 37,904 crore from the average AUM for September 2010 (7.13 lakh crore).

Nothing alarming

“Any fund house which had major part of its AUM in the debt market would have seen a fall in AUM this quarter. But fund houses whose equity AUM was larger would have seen an increase in their AUMs as the equity funds saw better performance over this quarter,” said Mr Surajit Misra, EVP and National Head-Mutual Funds, Bajaj Capital.

Although the drop in AUM of fund houses is nothing to cheer about, fund houses and mutual fund analysts are positive that the worst is behind them and that things are only expected to get better. “There is nothing alarming about the decline in the average AUM. Fund houses are not getting inflows to the order of outflows that they are seeing. But we can expect a reversal in the next quarter,” said Mr Dhirendra Kumar, CEO, Value Research. “Eventually, asset numbers don't matter to the investor as it is just business information for them and does not have too much bearing on their investment decisions.”

Of the 41 operational fund houses in the country, only 10 have experienced an increase in their AUMs. These are Pramerica Mutual Fund, Mirae Asset Mutual Fund, Benchmark Mutual Fund, Axis Mutual Fund, Fidelity Mutual Fund, DSP BlackRock Mutual Fund, Escorts Mutual Fund, Principal Mutual Fund, Sundaram Mutual Fund and Morgan Stanley Mutual Fund.

The remaining fund houses have seen a drop in their average AUM. The highest drop was seen in the case of Sahara Mutual Fund at 58.2 per cent while the lowest drop was in case of Edelweiss Mutual Fund at 0.64 per cent.

Out of the five largest houses, Birla Sun Life Mutual Fund, saw a 14.43 per cent drop in its AUM followed by HDFC Mutual Fund at 5.61 per cent, ICICI Prudential Mutual Fund at 5.57 per cent, Reliance Mutual Fund at 5.27 per cent and UTI Mutual Fund at 3.3 per cent.

Tight liquidity

“This quarter saw tight liquidity conditions in the banking system. A lot of money was pulled out from the money market. This is nothing but the cycle of liquidity tightness which is seen at the end of each quarter,” said Mr Akshay Gupta, CEO, Peerless Mutual Fund. “We expect the situation to be better in the next quarter. There may not be an excess liquidity situation but it will not be this tight either.”