The top five mutual funds in India lost Rs 42,239 crore of assets under management (AUM,) or 15.6 per cent, in October as compared to the AUMs in September 2008, according to the complete October data released by the Association of Mutual funds of India (AMFI).
Reliance Mutual Fund (down by 17.8 per cent to Rs 71093.7 crore), HDFC Mutual Fund (down 12.5 per cent to Rs 45479.37 crore), ICICI Prudential (down 21 per cent to Rs 39182.45 crore), UTI Mutual Fund (down by 14 per cent to Rs 38283.63 crore) and Birla Sunlife Mutual Fund (down 9 per cent to Rs 34,187.29 crore) witnessed an erosion in asset base after tight liquidity conditions led to mass redemptions from debt funds.
The equity markets fell the most in October this year with benchmark index, Sensex, falling nearly 24 per cent this month. This is the second consecutive monthly fall for mutual funds, after assets of the 35 fund houses shrank by 2.76 per cent in September.
The total AUMs of the industry at the end of October stand at Rs 431,901.42 crore from Rs 529,102.92 crore only a month ago. The AUMs of the mutual fund industry declined by 18.37 per cent in October in comparison to the asset base in September.
“There are two reasons why the asset base has gone down by so much. One, the valuation losses in equity assets because of the market fall and second, the heavy redemption in debt. However, the policy measures are helping. We are seeing that there is a reduction in pressure on the debt side because of liquidity since the RBI started the repo facility,” said Achal Kumar Gupta, managing director of SBI Mutual Fund.
In the first two weeks of October, over Rs 25,000 crore was withdrawn from liquid funds as call rates shot up and banks refused to lend to each other and companies. Overnight lending rates continued to spike throughout September to reach 17.5 per cent on October 1, following an estimated Rs 40,000 crore outflow in September to advance tax payments. This led to mutual funds selling Rs 26,081 crore of debt in October, according to data provided by capital markets regulator Securities and Exchange Board of India (Sebi).
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Since then, the Reserve Bank of India has unveiled several measures to infuse liquidity into the system including a cut in the policy rate and creation of a special window for mutual funds, which let banks withdraw money to meet the liquidity requirements. Further, the Indian Banking Association (IBA) on Saturday opened a special counter to assist mutual funds facing redemption pressure.
Assets in the mutual fund industry are heavily skewed towards debt. According to last month’s AMFI data, only around 31 per cent of the total assets (Rs 164021.9 crore) is in pure equity while 69 per cent of the total assets of the industry (Rs 365081.02 crore) is in debt. Analysts say that this leads to a sharp fall in the AUMs every time there is tight liquidity.
Smaller fund houses were the worst hit this time as their asset base saw a massive dip. These include Mirae Asset AMC (down by 56.5 per cent to Rs 1004.18 crore), Lotus India AMC (down by 31 per cent to Rs 5457.7 crore), DBS Cholamandalam AMC (down by 25.5 per cent to Rs 1194 crore) and ABN AMRO AMC (down by 20.5 per cent to Rs 7127 crore).
“Equity inflows have considerably reduced but redemption in equity schemes is still the same what it was 6 months ago—around 20 per cent on average,” said Anil Kumar, chief executive officer of Birla Sunlife mutual fund, Anil Kumar.
Even as corporate investors lost their nerve, retail investors have stayed on, especially in the equity schemes. “Retail investors would stay on. If they have stayed on for so long when markets have fallen by over 50 per cent this year, it is unlikely that they will pull out now unless there are unforeseen circumstances in the world markets,” said Suresh Sadgopan, certified financial planner of Ladder 7 financial advisors.