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When mutual fund houses declare average assets under management (AAUM) of Rs 8.7 lakh crore, there is one key number missing – investments made by their promoters or their group companies in the schemes of the fund house.
Industry experts say that this is a key number because among the top 5-10 fund houses, the investment made by promoters and their group companies is a good 5-20 per cent – quite a significant number because it impacts the ranking of mutual funds.
Says Dhirendra Kumar, CEO, Value Research: “AAUM (average assets under management) is more like an ego trip for most fund houses. The numbers do not tell the investors too much. Mutual fund houses should declare AAUM both with and without promoter and group companies’ investment. This will give an indication to the investor of how much money they have really collected every quarter from new investors.”
The AAUM difference between the top three fund houses, HDFC Mutual Fund, Reliance Mutual Fund and ICICI Prudential Mutual Fund, is around Rs 10,000-12,000 crore or just about 10 per cent. The pecking order could change if the promoters’ numbers are excluded from this. He has a point. The number of folios has been coming down consistently in the past few years. In fact, the net loss in folios in FY14 has been three million; it was 3.6 million in FY13.
On the other hand, the AAUM have grown to Rs 8.7 lakh crore in December 2013 (Rs 7.86 lakh crore in December 2012) because of income and liquid funds in which mostly large companies and investors put money. The AAUM in liquid funds have increased from Rs 1.49 lakh crore (December 2012) to Rs 1.81 lakh crore (December 2013). Similarly, in income funds, the AAUM have increased from Rs 3.78 lakh crore (December 2012) to Rs 4.24 lakh crore (December 2013).
Sundeep Sikka, CEO, Reliance Mutual Fund, says: “Any kind of disclosure is welcome. We will disclose assets with and without promoter or associate companies, if mandated by the regulator.”
From the regulator’s side, there are some restrictions. That is, the minimum number of investors in a scheme has been capped at 20 and the maximum that one investor can have in a scheme at 25 per cent.
Declaring these numbers will be good for the investor as well. “On one hand, promoters’ investments are a show of confidence and a sign of the trust they have in their fund house, but in case there is some problem the promoters can take out their money before the retail investor even gets to know,” adds Kumar. However, the definition of promoter and associate companies has to be made very clear, warns a CEO of a brokerage firm. “A clear definition is required, like all group and associate companies have to be included, otherwise there would be problems,” he says, adding that almost Rs 1-1.5 lakh crore of promoters’ money is in various fund houses.
In the past, assets managed by a fund house have come under scrutiny as well as criticism. A few years back, only assets under management were declared. But after it was discovered that some fund houses were allowing large investments in the last few days of the month (only to be withdrawn at the beginning of the subsequent month) to shore up their assets, the disclosure mechanism was changed to average assets under management.
Industry experts say more such disclosures are required so that the retail investor can benefit. “The monthly data of schemes should also give the number of investors in the scheme. This will clearly tell a new investor how many investors are there in the scheme,” says a mutual fund distributor. Some new fund houses like Parag Parikh Mutual Fund have started declaring the investment of their top management in their own schemes.
