ICRA’s Monthly Update on Mutual Funds Industry- April 2018


Industry AUM back on growth path, up 8.9% MoM

According to the Association of Mutual Funds in India (AMFI), Assets Under Management (AUM) of the Indian mutual fund industry increased 8.9% to Rs. 23.25 lakh crore in April 2018 from Rs. 21.36 lakh crore in March 2018. The increase has come after the industry saw month-on-month declines in February and March 2018. On a yearly basis, AUM grew 20.7% from Rs. 19.26 lakh crore in April 2017.

Extensive investor awareness campaigns at the individual and industry levels have contributed to the upside. Further, a shift from traditional physical assets such as real estate and gold towards financial assets has also led to the increase.

Beginning April 2018, AMFI has begun reporting Arbitrage Funds as a separate category in their monthly report. The AUM under Equity (including Equity Linked Savings Schemes or ELSS and Arbitrage Funds), Balanced, and other ETFs for April 2018 came in at Rs. 10.59 lakh crore, up 6.5% MoM and 49.6% YoY. AUM for Arbitrage Funds came in at 0.56 lakh crore in April 2018.

Industry sees inflows on the back of Liquid funds

The financial year began on a positive note and witnessed total net inflow of Rs. 137,428 crore in April 2018.  March 2018 had seen total net outflow of Rs. 50,752 crore. As expected, Liquid/Money Market funds witnessed the highest inflow of Rs. 116,486 crore during the month, following net outflow of Rs. 54,979 crore in March 2018. In the last six instances, net inflows have been in excess ofRs. 1 lakh crore four times.

In April 2018, Equity funds (including ELSS and Arbitrage Funds) witnessed monthly net inflow of Rs. 12,409 crore, up 86.4% from Rs. 6,657 crore in March 2018. March 2018 had seen equity outflows mainly because of volatile equity markets and implementation of the long-term capital gains tax (LTCG). Inflows in April 2018 suggest that investors have overcome their fears and the industry could witness higher numbers moving forward.

After registering an outflow of Rs. 13,719 crore in March 2018, the income category witnessed net inflow of Rs. 5,220 crore in April 2018. Inflows in Balanced category came in at Rs 3,500 crore, down 48.2% MoM following levy of a 10% dividend distribution tax from April 2018.

Systematic Investment Plans (SIPs) continue to gain traction and their contribution has increased more than 65% over a period of 1 year till March 2018. Cumulative SIP contribution was Rs. 67,190 crore in FY2018, up 53% YoY. This has also resulted in a 40% YoY growth in asset base of equity mutual funds to Rs. 8 lakh crore in April 2018.

Folio count up 1.2% MoM at 7.22 crore

According to data from the Securities and Exchange Board of India (SEBI), the total folio count at the end of April 2018 stood at 7.22 crore, 1.2% higher compared with March 2018. The mutual fund industry added approximately 8.47 lakh new folios in April 2018 out of which 7.36 lakh were in the Equity category (including ELSS). Balanced category added 1.07 lakh folios. However, folios declined in Income and other ETF’s category.

B30 accounts for 17.30% of total industry AUM in Apr 2018

As per SEBI February 2018 circular, scope of top cities and beyond top cities has increased from 15 to 30 cities. The country’s smaller towns or B30 (beyond top 30 cities) accounted for 17.30% of the total industry AUM at the end of April 2018. Non-associate distributors contributed Rs. 11.93 lakh crore to the month or 51.4% of the total AUM. In April 2018, the share of direct plans in B30 stood at 17.1% against 45.3% in T30 (top 30 cities).

Regulatory updates

In a bid to avoid confusion among investors over the past performance of merged schemes, the Securities and Exchange Board of India issued a circular directing mutual fund houses to follow uniform rules. When two schemes having similar features get merged and the resultant scheme also has the same features, the weighted average performance of both the schemes need to be disclosed. If two schemes have different features, fund houses can disclose the performance of the scheme whose features are retained. However, fund houses can also disclose the past performance of the scheme that was not retained post-merger on request from investors with adequate disclosure. Meanwhile, where two schemes have merged to form a different scheme altogether, fund houses need not disclose any past performance. The circular came into effect from May 1.

AMFI has advised distributors to avoid involving any celebrities/cinema characters in any format of promotional material related to mutual funds unless they receive specific written approval from SEBI.