The domestic mutual fund market has seen the steepest fall in assets since the crisis of October 2008.
According to latest data from the Association of Mutual Funds in India (Amfi), the industry’s average assets under management (AAUM) plunged 15.89 per cent, or Rs 1,27,695 crore, in June to Rs 6,75,864.20 crore, compared to the May figures.
“The decline in assets was anticipated,” said Surajit Mishra, executive vice-president at Bajaj Capital. “The overall liquidity crisis and outflows due to advance tax and 3G auction payments pulled down the assets sharply. The pullout by banks in the quarter-end was another major factor.”
In October 2008, the assets had dipped over 18 per cent with an outflow of Rs 97,096 crore. Though in percentage terms, the 2008 outflow was higher, in absolute terms, June saw the highest outflow of over 1.25 lakh crore. UTI Mutual Fund Chief Marketing Officer Jaideep Bhattacharya said, “Liquidity crunch and advance tax payments had their impact. Moreover, banks took out money at the end of the quarter.”
The equity segment, after the entry load ban, has been continuously seeing outlflows. However, industry players said the debt segment suffered a major hit this time. “We did not see much redemption in the equity segment. Rather, it was on the debt side,” said Bhattacharya.
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“Telecom companies sucked out over a lakh crore rupees from the system. This money will take its own time to come back,” said Tarun Bhatia, director (Capital Markets) at Crisil Research.
Institutional investors and companies account for close to half the corpus of the debt segment. “Investments by large institutional investors and corporates make up 50 per cent of the segment, primarily in ultra-short-term debt schemes,” said Bhatia.
Though fund houses expressed optimism that most of the banks’ and corporate money would come back, independent industry experts seemed sceptical. They said following the rate hike by the Reserve Bank of India today, banks might not park the money with fund houses so soon.
“The concern is that the outflow in June may not come back soon. On the corporate side too, companies may wait for clarity on new norms on valuation of debt and money market instruments by mutual fund houses on the mark-to-market basis,” said Mishra.
Echoing Mishra’s views, Bhatia said companies would continue to remain tense. “They are likely to put their money back in July but redeem before the month-end,” said Bhatia.
The Securities and Exchange Board of India (Sebi), in a circular early this year, had said the value of money market and debt securities in portfolios of mutual fund schemes should reflect the current market situation. For this, such instruments should be valued at the weighted average price at which they are traded on the particular valuation day. The norms were to be implemented from July 1 but have been postponed by a month. K N Vaidyanathan, executive director, Sebi, had said, “The purpose of extending the implementation date by a month to August 1 was mainly to provide a breather to fund houses due to the liquidity crunch.”