Net MF outflows of Rs. 1,27,451 cr in Mar 11; Rs. 13,405 Cr outflow in Equity in FY 10-11

Despite the equity market closing in net positive in FY 2010-11, it failed to excite the Indian Mutual Fund Industry in FY 2010-11. In Jan-Mar 2011, Mutual Funds had been actively buying in Equity but it did not boost up the overall AUM in Equity. The total AUM in Equity sans ELSS, Balanced and Other ETFs in Mar 2011 stands at Rs. 1,69,754 crore compared to Rs. 1,74,054 in the same month last year. Overall, there has been a net outflow of Rs. 13,405 crore from Equity category, thus, making it as the highest absolute redemption in a particular year. Since the ban of entry loads in Mutual Funds in Aug 2009, the Mutual Fund Industry has been bleeding with constant outflows. However, it stabilized in Feb 2011 with the highest net inflow of Rs. 2,495 crore in last 20 months.

Net inflows in Mar 2011

In Mar 11, there has been a total outflow of Rs. 1,27,451 crore from Mutual Fund industry, a common phenomenon in every financial year end month. In Mar 10 and Mar 09, it witnessed a net outflow of Rs. 1,62,165 crore and Rs. 98,697 crore respectively. Generally, banks redeem their investments in March again to invest in the following month. In FY 2010-11, there has been a total outflow of Rs. 48,931 crore. Categorically, the Income and Liquid/Money Market saw an outflow of Rs. 30,612 crore and Rs. 98,255 crore respectively.

FMPs flooded in Mar 11

The liquidity deficit and the burgeoning inflation which have forced the policy makers to raise the interest rates have actively changed the dynamics of the market. The Certificate of Deposits, popularly known as CDs – a short term money market instrument used by banks to borrow from the market has been very active in Jan-Mar 2011, predominantly in Mar 2011. Banks have issued CDs even at higher rates (10 per cent plus) in order to inflate the balance sheet as the year end closes in. In Mar 11 alone, there has been a total of 132 FMPs launched garnering a total corpus of Rs. 27,912 crore. In Feb 11 and Jan 11, there have been a total of 65 FMPs and 48 FMPs collecting Rs. 17,232 crore and Rs. 12,713 crore respectively. With money market rates falling specially CDs’ rates, the FMP saga may not continue in coming months.

Other categories too saw inflows

The other equity categories such as ELSS, Balanced Funds and Other ETFs saw inflows to the tune of Rs. 576 crore, Rs. 231 crore and Rs. 107 crore respectively. March being the tax season month saw the flows in ELSS as investors invest to save taxes up to Rs. 1 lakh. The Gold ETFs continued its positive flows in last 23 months except in May 10 where it saw a marginal outflow of Rs. 6 crore. In Mar 2011 and FY 10-11, it saw an inflow of Rs. 648 crore and Rs. 2,250 crore respectively. The inflow in Mar was the highest inflow till date mainly on surge of commodities due to geo-political tensions in MENA region which made people lured towards gold.

New Funds enter into industry

In Equity category, there were two NFOs – IDFC Infra Fund and Mirae Asset India – China Consumption Fund collecting a total asset of Rs. 93 crore. In Income Fund category, there were 3 NFOs in Open-Ended category and 134 NFOs in Close-Ended Category. The month also saw two capital protection funds by Sundaram Mutual Fund and SBI Mutual Fund. In other ETF category, the in-house promoted NASDAQ-100 ETF collected Rs. 48 crore.

                                                                                                                               Soure: MOSL
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Inflows to Equity continued; total inflows upped by Rs. 25,757 cr

The growth saga in Equity continues with a net inflow in Equity categories – Equity, ELSS and Balanced. The Equity category saw a net inflow of Rs. 2,495 crore, the highest inflow since July 2009. This positive figure is also for the third time in a row month-wise. However, the net assets of Equity dwindled due to fall in broader markets and outflows of foreign ‘hot moneys’. While the FIIs were the net sellers to the tune of Rs. 4,584 crore in Equity, Mutual Funds were the net investors to the tune of Rs. 1,477 crore. In totality, the Equity AUM nosedived to Rs. 1.59 lakh crore in Feb 2011 from Rs. 1.65 lakh crore in Jan 2011.

Total AUM also upped

The total industry AUM also rose to Rs. 7,07,412 crore in Feb 2011 from Rs. 6,91,080 crore in Jan 2011, a gain of 2.36 per cent. Also the total inflows were Rs. 25,757 crore in Feb 2011. The industry witnessed a strong inflow in Income Funds specially closed ended FMPs which saw 65 NFOs collecting a total sum of Rs. 17,232 crore in Feb 2011. The banks also upped its investment in Mutual Fund instruments predominantly in Income Funds and Liquid/Money Market Funds which saw inflows of Rs. 13,708 crore and Rs. 8,770 crore during the month. As on Feb 11, 2011, the banks’ combined investment reached to Rs. 95,018 crore compared to Rs. 13,483 crore in Dec 31, 2010.

New FMPs continued pouring in

The high interest rate scenario and tight liquidity in the financial system prompted Mutual Fund houses to launch FMPs which have become investors’ favorites. The tight liquidity has sent the CD/CP rates haywire crossing 10 per cent. Moreover, banks have also been building its balance sheets through subscription in Certificate of Deposits (CDs) as the financial year closes in. During the month, a total of 65 FMPs and Hybrids Funds were launched.

Other categories too saw inflows

The other equity categories such as ELSS, Balanced Funds and Other ETFs saw inflows to the tune of Rs. Rs. 348 crore, Rs. 216 crore and Rs. 480 crore respectively. The Gold ETF category also witnessed its successive positive inflows to the tune of Rs. 25 crore; lower than the last month figure of Rs. 125 crore. However, the gilt fund category and FOF investing overseas saw outflows to the tune of Rs. 271 crore and Rs. 14 crore respectively.

New Funds enter into industry

A total of 5 funds came into existence in open end category with 3 funds in Income category and 2 funds in Equity category. In close-ended category, 65 funds were launched in Feb 2011 which mostly consisted of FMPs and Hybrid Funds.

- Happy Investing!

TINA plus S – Curve Effect = M100, a Midcap ETF

After the success of MOSt Shares M50 ETF, the fundamentally managed ETF and the remixed version of Nifty 50 which created record in terms of largest number of ETF investors, Motilal Oswal Asset Management Company Ltd. (MOAMC) has come out with a unique and novel product MOSt Shares M100 ETF having TINA (There Is No Alternative) and S-Curve effect. It is India’s first mid cap ETF based on CNX Midcap Index.

Mid Cap Space – unfilled opportunity for investors

Investors have always been scouting for mid cap space for better returns in comparison to large cap stocks, even at a higher volatility. Many fund houses sensed this opportunity and introduced active mid-cap funds; however, most of them failed to beat their benchmark, categorically CNX Mid Cap over a longer period of time. Moreover, the high expense costs (on an average 2.1 per cent) for these funds have been eating their returns. So, practically, investors have been left with no option but to invest in these funds relatively at higher costs.

MOSt Shares M100 ETF

MOAMC known for its innovations have filled this gap with the launch of MOSt Shares M100 ETF, India’s first mid cap ETF based on CNX Midcap Index. The primary objective of the scheme is to seek investment return that corresponds generally to the performance of the CNX Mid Cap Index, subject to tracking error. 

Why M100 ETF with CNX Mid-Cap Index?

1)     The Fund proposes to keep the expense ratio within 100 bps unlike in active funds which have 2 per cent plus.

2)     In longer investment period say 3 years and 5 years, CNX Mid Cap has outperformed the average midcap fund by a good margin.

3)     The volatility of CNX Mid Cap Index (25.5 per cent) is less than Nifty 50 (26.1 per cent); so, you are getting higher returns even at lower risk.

4)     None of the constituents of CNX Mid Cap has more than 4 per cent exposure in the index; so, they are avoiding concentration risk, an important factor if the market moves uneven.

5)     CNX Mid Cap Index is driven by consumption growth story with majority exposures to HealthCare, FMCG, Auto, Construction etc; so, in long term, the index is going to perform better in comparison to other indices.

6)     Being an ETF, it trades like a share and acts as a fund with no entry and exit loads and portfolio disclosed on daily basis.

TINA and S-Effect

Frankly speaking, the TINA affect applies here – There Is No Alternative to this product in the market. Historically, CNX Mid Cap has bitten its large index counterpart in long year’s category. So, logically, the investors will get exposure in Mid Cap stocks at lesser costs (1 per cent – proposed). Moreover, the S-Curve effect applies to mid-cap stocks – from inception to high growth to maturity i.e. Small Caps -> Mid Caps -> Large Caps. These hidden gems are under-researched, under-owned and under-valued. So, they provide a good growth opportunity in future. 

Word of Caution

1)     Mid cap stocks provide better returns in comparison to large cap companies; however, they have the downside effect too in bear market. However, investors planning to hold for longer years (minimum of 3-5 years) can get good returns over Large Caps.

2)     The proposed expense ratio (up to 1 per cent) is a win-win situation for investors; however, the fund house may go for the maximum permissible expense of 1.5 per cent which can deter the performance. However, it is still below the average expense ratio (over 2 per cent) of active mutual funds.

Should you buy?

First of its kind, the mid cap space has always been dominated by active funds. However, with the availability of this product, the investors fraternity must be excited to get exposures in mid cap stocks at comparatively lesser costs.  Also, the ETF story has started running in India which generally works at lower costs and in the long run, the history says that passive funds work better than an active funds. No doubt ETFs are going to bang in coming years.

M100 rocks!

Happy Investing!

- Amar Ranu

Equity Outflows dampened; Net assets grew to Rs. 6.65 lakh crore

In 2010 YTD, FIIs have been pouring money (referred as ‘hot money’) following the continuing global economic turbulence all over and thus, in some aspects, the inflows have been providing a temporary relief to burgeoning Current Account Deficits (CAD), expected to be over 3 per cent in current Fiscal Year. On the contrary, Mutual Funds have been bleeding seeing their assets depleting rapidly, especially Equity outflows. However, in Nov 2010, the situation improved in favour of domestic Mutual Fund Industry. On an average, the total industry AUM increased to Rs. 6.65 lakh crore, up by 2.92 per cent. Since the last four months, assets had been depleting continuously. The maximum growth was seen in Liquid/Money Market where the assets grew to Rs. 99,190 crore, a growth of 15.37 per cent over the last month.

Gilt Funds, where the investments are predominantly in Government Securities have seen an increased activity where a lot of investments flew in. The AUM grew to Rs. 4,410 crore, an increase of 11.08 per cent while the total inflows were Rs. 431 crore. This is the only category which has been witnessing positive inflows for the last 6 months. The high gilt yields scenario is throwing an opportunity for investors to reap the capital gains once the yields come down on account of eased liquidity situation, low inflation and improved economic outlook.

In Equity, the outflows continued albeit at much lesser amount. In Nov 2010, it saw an outflow of Rs. 41 crore only in comparison to an average outflow of Rs. 3,523 crore in last five months. The ELSS category too continued with the net outflow. This month, the outflow had been to Rs. 62 crore. In last eight months, the category saw the redemption of Rs. 993 crore, the maximum in recent years. However, the Balanced Fund category which involves a mix of Equity and Debt investments saw an inflow to the amount of Rs. 255 crore. However, its AUM declined to Rs. 18,871 crore in Nov 2010 from Rs. 19,462 crore in Oct 2010.

ETFs continue to move unidirectional with inflows. The Gold ETFs have drawn an added interest from investors which led to an inflow of Rs. 172 crore. In last 19 months, the category witnessed positive inflows in 18 months, the maximum among all categories. In other ETFs section, the inflows continued with a major addition of Rs. 328 crore. The AUM also rose to Rs. 1,852 crore in Nov 2010 from Rs. 1,690 crore a month earlier.

In Income category, the total AUM increased by 3.99 per cent to Rs. 3.31 lakh crore. The category saw an inflow of Rs. 11,307 crore in Nov 2010.

There were no new funds launched in Equity category; however, there was an open ended Gold ETF (Axis Gold ETF Fund) and Fund of Funds investing Overseas (JP Morgan EEMA Equity Offshore Fund) launched in Nov. However, there was a flurry of Fixed Maturity Plans (FMPs). A total of 36 FMPs was launched in Nov 2010 collecting a total fund of Rs. 5,281 crore. The liquidity deficit has sent the short term yields higher which have helped the Fund Managers to lock in the opportunity in dolling out FMPs which provide tax benefits in comparison to other investment products.

Source: MOSL

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MOSt Shares M50 – Is it another offer in the crowd?

Recently SEBI’s Chairman C B Bhave commented if 3000 schemes flooded in the industry served a purpose to investors’ fraternity as they have failed to convince the investors of the long-term benefits of their products. He also suggested that the mutual funds should provide better returns by rolling out simpler products. Now coming to another zone where Mutual Funds continue to roll out new NFOs – HDFC Gold ETF, Peerless Income Plus Fund, MOSt Shares M50 ETF, Taurus MIP Advantage, Benchmark Short Term, Axis Triple Advantage and many Fixed Maturity Plans (FMPs). I have been wondering if I am an investor which one I should choose. As a simple investor, my aim should be to maximize returns with least volatility; also I should bear minimal costs.


Among the above captioned NFOs, all the NFOs were more or less similar to the existing plans offered by another fund houses; I found a unique offer by Motilal Oswal AMC with its maiden NFO MOSt Shares M50 ETF. Though the ETF concept is new in India and has not been well received by investors yet, ETFs are on high. Historically, it has grown exceptionally even in intermittent market. Let me give out in detail why MOSt Shares M50 ETF is unique and investors’ friendly.

Product Features

As claimed by Motilal Oswal Mutual Fund, MOSt Shares M50 ETF is India’s 1st fundamentally weighted ETF based on the S&P CNX Index (Nifty). Logically, it is the remixed version of Nifty 50. The fund house has created its own basket “MOSt 50 Basket”, intellectually owned by MOAMC and managed by India Index Services & Products Ltd. (IISL). The weights of stocks in MOSt 50 Basket will be decided by their pre-defined methodology based on stock’s fundamentals (ROE, Net Worth, Retained Earnings and Valuation).

The fund aims to generate investment returns with minimal costs and active investment style. With no entry and exit load, the investors get another opportunity in terms of liquidity. The fund manager will invest 95-100% of the money in MOSt 50 basket and the exposure to fixed income and money market instruments along with cash call will be restricted to 0-5% of the total money invested.

Investment Strategy

The fund has reworked the weights of stocks in Nifty based on its own defined fundamentals such as Return on Equity, Net Worth, Retained Earnings and Price. They have designed the capital allocation strategy of the MOSt 50 basket to reduce the risk associated with price volatility of individual constituents. The table 1 defines the basket classification of MOSt 50 Basket.

So, some of the companies will be more dominant than others based on the current methodology.

Back Testing

The fund has done the back-testing with current methodology for the last 3-year period and the portfolio has given an additional alpha (excess of returns over its benchmark, in simple terms) of 13.2 per cent. It has also beta value of 0.94 against Nifty beta of 1.

Should you buy?

As far as the ETF story is going on, it has been building up in India. People have started recognizing the importance of ETFs as fund managers have failed to outperform the benchmarks over a longer period. Moreover, this new ETFs, also called as active ETF scored over others and provide uniqueness in terms of simplicity and maximization of returns over a longer period.