Management fees of mutual fund investment advisers declined by Rs 243 crore, or 15 per cent, in the financial year 2008-09 owing to a sharp decline in new fund offers (NFOs) as fund managers could not protect investors’ wealth due to the meltdown in equity prices across the globe.
Equity-oriented schemes lost Rs 81,000 crore in value term, while assets under management (AUM) under these schemes declined sharply by 40 per cent during the said year.
Nevertheless, fund managers received Rs 1,424 crore as management fees in FY09 for managing equity funds -- fractionally lower than the Rs 1,667 crore received in FY08. As is known, only 10 per cent equity schemes have posted returns, while 90 per cent had made losses during the year under review. This means, a 15 per cent decline in the managers’ fees is disproportionate compared to the performance of equity schemes in FY09.
The underperformance of equity fund managers is attributed to the falling stock prices, which resulted in a huge value depreciation.
The decline in the market value of investments had been sharp between September 17 and October 27, 2008 due to the global financial turmoil. Fund managers across the globe could not foresee the meltdown, which hardly provided selling opportunity to book profits.
India’s biggest mutual fund, Reliance Mutual Fund, made a provision of over Rs 223 crore as advisory fees for managing assets of over Rs 20,000 crore in 17 equity schemes. UTI Mutual Fund (Rs 158 crore), HDFC Mutual Fund (Rs 144 crore), Franklin Templeton Mutual Fund (RS 125 crore), ICICI Mutual Fund (Rs 123 crore) and SBI Mutual Fund (Rs 110 crore) are the ones that pay over Rs 100 crore every year to their fund advisers.
Data culled from portfolio disclosure of 35 mutual funds for the year ended March 2009 show that for 75 per cent of the equity schemes, the management fee is more than 1 per cent of the corpus, which is considered to be higher when 90 per cent schemes failed to deliver returns.
Paying advisory fees for poor performances is in a way rubbing salt into the wound of mutual fund investors.
