The mutual fund industry is likely to witness an erosion in its average assets under management (AAUM) during final month of the fiscal year 2008-09 due to redemptions from liquid and bond funds. As per data from Association of Mutual Funds in India (Amfi), the total AAUM of 17 fund houses that have declared AAUMs so far has fallen by over Rs 4,000 crore, as compared to February.
Industry experts believe that a depletion in AAUM is a natural year-end phenomenon as banks and corporates tend to redeem their investments in order to shore up their balance sheets during the end of fiscal.
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| Change in AAUM | |
Source: Amfi; data based on 17 fund houses
“Redemptions are a normal phenomenon every fiscal year-end. These redemptions mostly take place on liquid funds where banks and corporates invest heavily during the year. But, this money will again flow into the fund industry during the first week of April itself,” said Nimesh Shah, MD & CEO, ICICI Prudential Mutual Fund.
As per the data, the total AAUM of the 17 fund houses, which have declared their numbers so far, stood at Rs 2,22,687 crore, a drop of about 1.8 per cent as against Rs 2,26,732 crore during February. Interestingly, HDFC Mutual Fund witnessed a jump of over Rs 1,000 crore in its March AAUM at about 57,964 crore as against Rs 56,864 crore in February. Going by the usual trend of year-end redemptions, ICICI Prudential Mutual Fund witnessed a drop of about Rs 2000 crore in its AAUM at Rs 51,432 crore as compared to Rs 53,514 crore at the end of February.
“Institutional buying happen again in April. Corporates tend to withdraw from their investments during March in order to take care of their liquidity position,” said the chief investment officer at an international bank-promoted fund house.
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Tata Mutual Fund has witnessed the biggest drop in its assets so far, with its AAUM falling by about 12 per cent or Rs 2270 crore during March at about Rs 17,000 crore as compared to around Rs 19,299 crore at the end of February.
Due to huge redemption pressure during the year end, mutual funds prefer to allocate most of their investments in short term debt papers like Collateralised Borrowing and Lending Obligations (CBLOs) and repos. These investments hold tenures ranging from overnight to about 90 days, and fetch returns of upto 4.5 per cent.
Industry experts said that as the new fiscal year starts, fund houses tend to invest in long term papers like commercial papers and certificate of deposits which are relatively longer term debt papers, though being those fetching higher yields of 7-8 per cent.