Faced with redemption pressures in liquid and income funds, the mutual fund industry saw its assets under management fall by 7 per cent in May.
The assets under management (AUM) of the mutual fund industry declined from Rs 7.85 lakh crore in April 2011 to Rs 7.31 lakh crore in May.
This is line with expectations, say fund analysts, as funds from liquid and money market schemes generally see their way out of the system at the beginning of every fiscal quarter.
Banks withdrawal
Liquid and money market funds' assets under management stood at Rs 1.83 lakh crore, down from Rs 2.22 lakh crore last month. This category has seen a 17 per cent fall owing to withdrawals by banks.
“Banks are one of the main investors in this category,” said Mr Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio.
“The directive by the RBI on mutual fund investments will now compel banks to reduce their exposure to these funds and lead to withdrawals. This decline in the industry AUM may continue for a while.”
The RBI in its May policy review had asked banks to restrict their investment in mutual funds to 10 per cent of their net worth. Banks were given time till October 2011 to comply with the rule.
The equity AUM in the industry has also fallen. It declined 1.72 per cent in May.
The AUM of this category as of May 2011 stood at Rs 1.67 lakh crore. Equity AUM as of May 2010 was Rs 1.71 lakh crore.
Equity funds' AUM has been on a decline due to decrease in retail participation, say analysts.
Apart from declining distributor interest in this product category, poor market performance has also aggravated the situation, said a mutual fund house official.
Exchange traded funds saw the highest drop in their AUM this month, at 25 per cent.
ETFs (excluding gold ETFs) experienced heavy outflows on account of profit-booking, said fund managers.
Gold ETFs continued to remain popular with the AUM increasing by 13.8 per cent to Rs 5,463 crore (around 1 per cent of the industry AUM). Analysts pointed out that this was due to an increase in investments in gold ETFs, and also due to an increase in the underlying asset.
Gold ETF AUM went from Rs 4,800 crore to Rs 5,463 crore in the last one month. Gold prices also went from Rs 2,160 a gm levels to Rs 2, 220 a gm levels during the same period.