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The makeover of the Mutual Fund Industry


The equity indices started off the blocks decently in 2014 and picked up momentum especially after the 16 of May, what triggered the market was a slew of announcements made by the government like deregulation of the diesel prices and approving the new gas policy and LPG subsidy as well and the subsequent falling of the crude prices along with the strong inflows of FDIs into the Indian shores ensured great appreciation for the Indian markets.

Evidently the S&P BSE and the CNX Nifty both clocked close to 30% and this surge along with the inflows in equity oriented categories lifted the assets of Equity and ELSS categories by almost 76% and 48.37% respectively. The stock markets traded at an ever all time high coupled with the strong inflows received in the equity fund categories, and the AUM of the mutual fund industry clocked newer highs of 10.90 trillion by the Nov-14 end.

The HDFC Mutual Fund was at the no-1 position till Sept 14 with an average AUM of 141,481 crores, following it was the ICICI Prudential MF witnessing a growth of 31.35% and the Reliance Mutual Fund average assets grew by 19.11%, close to the heels was Birla Sun Life AMCs and the UTI AMCs average AUM gained by close to 12%. The Birla Sunlife AMC acquired the mutual fund segment of ING Vysya and the Kotak Mahindra took over the domestic schemes of the Pine-Bridge Mutual Fund.

 Just to help the mutual funds spread its reach the capital market regulator Sebi allowed the distributors to use the stock exchange as a platform for the non demat transactions as well for the redemption or the sale of these financial products and so also raised the minimum net worth of asset management companies from Rs 10 crores to Rs 50 crores.

 In order to get more ownership towards the fund performances another concept was introduced which is the concept of seed capital of 1% of the amount raised by each scheme which is to be invested by the fund houses in the open ended schemes subject to a limit of Rs50 lakhs, further more even the EPFOs to invest up to 15% of their corpus in the equities and so also the mutual funds. Just to boost the transparency and the quality of the disclosures the AMCs has been directed by the Sebi to disclose the AUM from different categories of the schemes like equity and debt schemes etc, and the AUM from B-15 cities, the contribution of the sponsor and its associates in the AUM of schemes, the sponsor group, non sponsor group distributors etc.

A huge drive is on for the investor’s awareness regarding the mutual funds in regional languages in print as well as the electronic media. So also the mutual funds have been directed to disclose their Monthly Asset under Management (AUM) on the monthly basis on their websites and also disclose the same with the Association of Mutual Funds in India (AMFI).  Even the minimum subscription amount of the debt oriented and the balanced schemes at the time of the new fund offer to Rs 20 crores on half yearly rolling basis is to be maintained for the open ended debt oriented schemes. Still going one step ahead the holding period for the long term capital gains has been increased to 36 months from the 12 months in the Union Budget of 2014 if the investors redeem units of the Debt, Gold, MIPs and the Fund of the Funds before 36 months then the capital gains will be taxed at the personal income tax rate of the investor. AND just to remove the tax arbitrage the rate of tax on the long term capital gains is increased from 10% to 20 % now on any transfer of the units of the Mutual Funds other than the equity oriented funds.

Even the investment limit U/S 80C is now increased from I lakh to 1.5 lakhs in the budget -14. And among the asset classes the equity was the biggest to gain in terms of the highest amount of the inflows received and so also the gained upon the grand growth in the AUM. As the Indian equities received ample interest from the overseas FIIs investor last year pumping more than one trillion in the Indian Equities and so also the mutual fund investors showed interest in the domestic equities by pumping in close to Rs 43,000 crores in the equities till the Nov of 2014.

Thus in the year 2014 the mutual fund industry underwent through the consolidation process. So all you have to do is to invest in the mutual funds as the mutual funds always enjoy an upper hand over the direct stocks in terms of the diversification, flexibility, transparency, low transaction cost as well as the track record as here you can easily spread your risk across sectors and stocks in the option of the diversified investments. This diversification reduces the risk significantly because all the stocks do not move simultaneously and hence provide better downside risk protection than the stocks comparatively. And commencing in the mutual fund investing at a low cost one can always plan to invest in monthly installments through the systematic investment plans (SIPs).