Sponsor contributions in mutual funds near the Rs 1 trillion mark

Mutual fund bets in their own schemes are nearing the Rs 1 trillion mark.

The total value of sponsor and associate investments across all categories of schemes touched Rs 95,058 crore in February, according to a Business Standard analysis of data from industry body the Association of Mutual Funds in India (Amfi). This represents a 28.9 per cent increase over March 2023. The increase comes after two straight years of decline.
 

Some of the changes may be attributed to market movements. The S&P BSE Sensex, an index whose movements are considered broadly indicative of stock market performance, was up 22.9 per cent for the current financial year (FY24) as of February. It was up less than one per cent year-on-year (Y-o-Y) in March 2022.  
 

The Securities and Exchange Board of India (Sebi) requires those running mutual funds to invest money in their own funds as part of having ‘skin-in-the-game’, or aligning their interests with investors. 
 

Mutual funds may have an incentive to take aggressive positions to enhance short-term returns, according to a note to the regulator’s board meeting in July 2021. Many mutual fund employees also have a bonus component and equity in the asset management company (AMC) running the mutual fund to align employee interest with that of shareholders.

 

“In the short term, the interests of shareholders of the AMC may not be aligned with the interests of the unit holders. Thus it becomes important to have mechanisms to align the interest of the AMC and its em­ployees with the interest of the unit holders... (the) concept of AMC/sponsor making inv­est­ment in the scheme, is to ha­ve...skin in the game,” said Sebi.
 

The value of these investments was Rs 83,385 crore in March 2019. They accounted for 3.4 per cent of the total assets under management at the time. The amounts inv­olved have been going up since, even as the share of assets has been declining. In March 2022, the contributions made up 2.2 per cent of the total assets and remained under 2 per cent in March 2023 and February 2024 (latest data available). Mutual funds managed Rs 54.5 trillion worth of assets as of February.
 

The largest share of sponsor and associate investments is held in debt funds. They account for over Rs 76,000 crore. Equity funds account for over Rs 12,200 crore, up 83.6 per cent from March 2023. Debt fund assets are up 21.2 per cent in the same period. 
 

Debt has traditionally been a larger component of such investments. But the latest numbers show that the share of equity has now exceeded 10 per cent.
 

The share of debt-oriented schemes fell from 93 per cent in March 2019 to 85 per cent in March 2023. Their share as of February is 80 per cent.  In comparison, the share of equity-oriented schemes has risen from 6 per cent in March 2019 to 13 per cent in February. Exchange-traded funds that mimic returns of underlying indices, made up 5 per cent of the investments.  

While balanced schemes, which have a mix of debt and equity components, account for 1 per cent of the share, funds investing overseas make up less than 1 per cent.