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Small asset management companies (AMCs) have witnessed significant erosion in their assets under fixed maturity plans, or FMPs following the adverse tax changes to debt mutual funds announced in the Union Budget in July.
Mutual fund houses, including Pramerica, BNP Paribas and BOI AXA, have seen their FMP assets plunge between 45% and 80% since July as new tax rules have taken the sheen off the investment product popular among corporates and high networth investors.
Meanwhile, the industry-wise FMP asset base has shrunk only by about 5% between July and August, as some of the bigger players have managed to convince their investors to rollover investment to enjoy tax benefit.
The Finance Minister in July had increased tax on debt funds from 10% to 20% and increased the tenure for claiming long-term capital gains tax from one year to three years. The move had severely impacted FMPs, which were most-popular investment vehicles for parking capital for a short duration.
FMPs offer up to 200 basis points higher returns (including indexation benefit) compared to bank fixed deposits over an investment horizon of 12-15 months.
Small- and mid-sized fund houses were relying on these products to augment their asset base. However, the tax changes have left them bleeding.
| Steep fall | Certain smaller AMCs have reported sharp drop in FMP assets in August | ||
| FMP AUM (in Rs cr) | July | August | Decline (%) |
| Pramerica MF | 124 | 22 | 82 |
| BNP Paribas | 705 | 368 | 48 |
| BOI AXA | 310 | 170 | 45 |
| IDBI MF | 516 | 386 | 25 |
| Sundaram MF | 1,990 | 1,672 | 16 |
| Top 5 Players | |||
| HDFC MF | 21,664 | 21,120 | 3 |
| ICICI Prudential | 22,907 | 22,493 | 2 |
| Reliance MF | 21,510 | 21,122 | 2 |
| Birla Sun Life MF | 16,623 | 15,867 | 5 |
| UTI MF | 9,876 | 9,444 | 4 |
| Industry | 1,59,874 | 1,51,775 | 5 |
| Source : ICRA | |||
Pramerica Mutual Fund lost a massive 82% of its FMP assets in August. Its AUM under this category fell to a mere Rs 22.11 in August compared with Rs 124.13 crore in July. For BNP Paribas MF and BOI AXA MF the decline was 48% and 45%, respectively. Other fund houses like IDBI MF lost 25% of FMP assets, while Kotak MF and HSBC MF lost 13%, each.
Niranjan Risbood, director (fund research) at Morningstar India said the outflow of corporate money could have reason behind such a massive fall.
"The corporate money, with a time horizon of more than one year, is adversely impacted. This used to get invested into FMPs or short term funds. Some part of this money may move to other investment avenues like bank deposits,” he said.
Large fund houses, however, have so far remained insulated.
HDFC MF, ICICI Prudential, Reliance MF, Birla Sun Life MF and UTI MF - managed to stay afloat with a decline of a mere between 2 and 5%.
The top five fund houses together had assets under management in FMP worth Rs 92,000 crore - nearly 60% of industry's total assets in this category.
"Majority of the investors have agreed to go for a roll over for 36 months. But we have stayed away from launching new FMPs as of now. Opting for roll over, I believe, may not be by choice but by compulsion. Until we see investor demand, we would not be comfortable launching a three year product," said chief marketing officer of a large fund house.
Industry players said that retail money in FMPs has largely been sticky as opposed to corporate investments.
"We will be impacted but not as significant as the industry would. About 30% of our FMP asset is retail and almost 85-90% of the retail money used to get rolled over,” said Dinesh Khara, managing director, SBI Mutual Fund, which has seen its FMP asset base decline around 6%.
Some experts believe that FMP assets could report further erosion in September, the data for which would be due in about a week.
