Fund houses set to make a killing

Earnings to exceed Rs 850 crore this fiscal.

Equity mutual funds are set to make record profits of almost Rs 850 crore for their fund houses in 2005-06.

Last year, the fund houses had earned less than Rs 250 crore. Portfolios of equity mutual funds rose by 74 per cent or Rs 28,640.25 crore to Rs 67,352.72 crore during the first eight months of 2005-06.

This is expected to result in a record income for the industry as fund houses charge management fees of 1.25 per cent on their equity schemes based on the size of a portfolio.

Management fee is computed on a daily basis and for April-November, it comes to Rs 524 crore by taking assets under management at the end of each month. Even if the assets remain at the same level as in November, the fund houses will earn Rs 84.19 crore per month for the rest of the year and the annual fee will cross Rs 850 crore by March 2006.

The assets under management of top 15 open-ended equity diversified funds have increased by 43.31 per cent or Rs 7,694.23 crore during April-November 2005 to Rs 25,460 crore.

"With the assets growing, the fee is going to increase substantially," said an executive with Franklin Templeton Mutual Fund.

Franklin Templeton is expected to be one of the biggest gainers with Franklin India Flexi Cap, having the second largest portfolio for equity schemes at Rs 2,207.59 crore. Its Franklin India Prima scheme is a close third with an asset size of Rs 2,107.43 crore.

Interestingly, Fidelity Equity Fund, which was launched in April this year, has raced to the top of the heap with a portfolio of Rs 2,668.32 crore. SBI Mutual Fund's Magnum MultiCap Fund, launched as late as September 16, had a portfolio of Rs 2,085.38 crore at the end of November.

According to latest data, four schemes have portfolios of over Rs 2,000 crore. There was none at the Rs 2,000-crore mark at the beginning of 2004-05.

The swelling portfolios also give players flexibility in managing their expenses which are capped at 2.25 per cent of the portfolios for equity schemes.

The industry is cashing in on the boom. Thirty-one new equity diversified schemes were launched in 2005, taking the total in the category to 142. Altogether, the mutual fund industry launched 47 new schemes this year.