Dematerialization of Mutual Fund Units – Simplifying the Investment Process

For quite few months, Mutual Funds in India have witnessed investors’ friendly regulatory changes, thanks to SEBI.  Right from the ban of entry loads in Aug 2009 to facilitating transactions in mutual funds schemes through the existing stock exchanges infrastructure in Nov 2009, SEBI now allowed mutual fund investments to be held in dematerialized form. It means that investors will have the option to convert their existing mutual fund investments into dematerialized form and buy/sell units through stock exchanges.

Background

With the removal of entry loads, SEBI intends to bring an advisory model where the intermediary charges a fee directly to the investors for providing advisory services to them. This reduced distribution incentive for distributors who found difficult to serve customers in far-flung areas or tier-3 & 4 cities. With this intent to provide mutual fund services to every nook and corner of India, SEBI decided to utilize the existing stock exchange infrastructure for mutual fund transactions.

Dematerialization of Mutual Fund Units

1.       Process

·        If you are an existing demat account holder, you can submit a Conversion Request Form (CRF) from your DP and submit the fully filled CRF form along with the Statement of Account to your DP. After due verification, the DPs will co-ordinate with the Asset Management Companies (AMC) and their Registrar and Transfer Agents which in turn after due verification
will credit the mutual fund units to your demat account.

·        If you are not a demat account holder, you will require to open a demat account with a DP before you can convert existing mutual fund units in demat form.

2.       Subscription of Units

Investors can subscribe to Mutual Fund units through their Stock Broker using the Stock Exchange platform. Upon subscription, the AMC/RTA will credit the mutual fund units to your demat account.

3.       Redemption of Units

Investors can redeem their dematerialized mutual fund units through two different modes. They can submit Redemption Request Form which in turn will send to the AMC/RTA after due
verification. The AMC/RTA will verify the form and credit the maturity proceeds in the bank account available in the depository system.

Why should you convert Mutual Funds into demat form?

1.      Consolidation – Even you are holding mutual funds investments with a number of AMCs, say 10 or 20, you can view all the transactions in a single statement instead of managing and collection statement of accounts from all AMCs.

2.      Easy Monitoring – Once you have your holdings at one place, you will be able to monitor them effectively and can also analyze its performance in one go.

3.      Fast transactions – Having all Mutual Fund units in a demat account can allow you to buy/sell the units without any inconvenience. It can be done either through a phone call or an online instruction unlike in physical units where you need to sign the repurchase form with each
AMCs and submit it in their point of presence (PoPs).

Drawbacks

The holding of MF units in demat account will necessarily lead an additional cost, a cost charged by stock broker on maintaining the demat account along with transaction charges. Currently, all brokers are offering transactions on MF units at free of cost which they might abandon once the volume picks up.

The impact will be minimal for those who already have a demat account with DPs. The potential of dematerialization of mutual fund units nullifies the cost associated with the demat account. Once powered with the demat units, the convenience and ease of transactions will definitely overrule the process of managing transactions with different AMCs. It provides a single platform to transact across multiple fund houses and their associated schemes. This is one of simplified steps which will help in simplifying investors’ financial life. Moreover, dematerialization of mutual fund units will improve the documentation process.

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

Happy Reading!

Liquid, income and equity led to total outflows of Rs. 71,838 crore

Sensex at its 33-month peak; a cycle from 20,000 to 20,000. Investors are anxious, markets are overheated. Mutual fund industry has been bleeding and it remains continuous, in fact certain. Equity funds have been witnessing redemptions; in Sept 2010, equity funds saw its maximum ever redemption amount of Rs. 7,011 crore. In the last 14 months, since the ban of entry load on mutual funds, the outflows have been for 11 times while inflows have been for 3 times. In totality, the redemptions till date since Aug 2009 are Rs. 21,461 crore. Not only equity funds, Balanced Funds too witnessed an outflow of Rs. 414 crore. It is the maximum outflow in Balanced Category in recent years.

Earlier, the fund houses were complaining of low incentives to boost distributors to sell products; now the investors have been redeeming the funds as many fear that there could be a correction in Equity Markets. With many funds reaching new NAV highs, investors preferred trimming their holdings. However, the gross inflows in Equity Funds during the month were the highest since April this year. It was Rs. 5,793 crore in Sept 2010 compared with Rs. 4,928 crore in Aug 2010. Also, the total assets as in Sept 2010 in Equity Category grew to Rs. 1,85,484 crore from Rs. 1,79,200 crore in Aug 2010 mainly on account of rising of equity.

Except Gilt Funds and ETFs, all other categories witnessed net outflows triggering systematic outflows. Liquid/Money Market Funds witnessed the maximum outflow to the tune of (-) Rs. 36,108 crore. Similarly, Income Funds witnessed outflow by Rs. 28,637 crore. Both categories which cater mainly to institutional investors witnessed heavy redemptions due to liquidity deficit in the financial system. Banks, major investors in these funds have also redeemed their investments in Sept 2010. In totality, the total exposure of banks to Mutual Funds as per the RBI estimates have declined from Rs. 59,984 crore as on Aug 27, 2010 to Rs. 33,534 crore as on Sept 24, 2010.
Overall the industry witnessed net outflows of Rs. 71,838 crore due to large redemptions in debt funds.
ELSS, Equity Linked Saving Schemes where investors get benefits for investments up to Rs. 1 lakh under Sec 80C also saw redemptions to the tune of Rs. 270 crore for the sixth consecutive times since April 2010.

On a positive note, Gilt Funds witnessed a net inflow to its kitty. It witnessed a net inflow of Rs. 521 crore. The G-Sec yields have been trading at their high levels mainly on account of RBI’s aggressive monetary policies and high inflationary pressures. Headline Inflation as measured by WPI is set to moderate by the end of this fiscal year. Moreover, liquidity may also improve by Jan-Feb next year. All these factors may bring down G-Sec yields which will benefit these Gilt Funds to the maximum.

In Equity Category, there were 3 NFOs – IDBI Nifty Junior Index Fund; Reliance Small Cap Fund, Reliance Index Fund – Nifty Plan and Sensex Plan which collected a total amount of Rs. 677 crore. Two Ultra Short Term Funds – IDBI Ultra Short Term Fund and Pramerica Ultra Short Term Bond Fund were launched which collected Rs. 597 crore in combine. FMPs continue to rule the industry with a total of 37 new NFOs which collected a total amount of Rs. 7,454 crore. The high short term yields can be attributed to these launches which have caught the attraction of investors.

Equity outflows continue; industry added Rs. 31,654 crore

Mutual Fund industry saw a temporary relief after witnessing outflows in last two months consecutively. In July 2010, the industry saw a net inflow of Rs. 31,654 crore to its kitty mainly on account of net inflow of Rs. 34,303 crore in Liquid/Money Market category. On the other hand, the total AUM increased to Rs. 6.68 lakh crore, a rise of Rs. 38,420 crore or 6.10 per cent over the last month figure. All categories except FOF Investing Overseas reported an increase in its net AUM. While Income Funds comprising 50 per cent of total AUM reported a meager increase of 1.11 per cent in its AUM, Liquid/Money Market Fund category reported an increase of 46.56 per cent. The latest AUM figures for Income and Liquid/Money Market Fund stand at Rs. 3,31,949 crore and Rs. 1,05,333 crore respectively. The Other ETFs category shows a dramatic increase in AUM after Motilal Oswal Mutual Fund successfully closed its maiden fundamentally modified ETF MOSt Shares M50 with a total AUM of Rs. 236 crore. It has a total AUM of Rs. 1,532 crore, an increase of Rs. 397 crore other its last month figure. The Diversified Equity category showed a negligible increase of 0.10 per cent to Rs. 1,78,492 crore. Other categories too moved up albeit marginally.


The Equity Diversified Fund category saw a major redemption having a total outflow of Rs. 8,413 crore against an inflow of Rs. 5,013 crore, thus, a net redemption of Rs. 3,400 crore. The equity markets have already touched their February 2008 level and investors have become cautious of overheat going in the equity market as they fear a correction from this level. Moreover, some investors who were sitting at their investment since 2007 had also redeemed their money. Hence mutual funds booked profit to meet investors’ redemption pressures. As per the latest SEBI figures, Mutual Funds had net sale of Rs. 4,405 crore in July 2010.

Table: Mutual Fund Asset Growth

The Liquid/Money Market saw the maximum inflow of Rs. 34,303 crore mainly on account of switch outs from Income/Ultra Short Term Funds to Liquid Funds. After the introduction of new MTM ruling on debt securities having average maturities more than 91 days, the Ultra Short Term Funds were the worst hit. Corporate fears that it will bring volatility to the funds which will bring down the returns. They eventually shifted to Liquid Funds or redeemed their investments. The Income category saw a net inflow of Rs. 475 crore only.


In other categories, ELSS saw a new outflow of Rs. 139 entering into fourth month having outflows consecutively month-on-month. Balanced Funds too saw an outflow of Rs. 43 crore continuing its last month losing streak. However, the industry has been witnessing a major shift since last few months from active funds to passive funds. ETFs which cater to passive funds category have seen a substantial increase in inflows. The Gold ETF and other ETFs category added Rs. 155 crore and Rs. 375 crore respectively.

The month also saw the launch of 7 open-ended NFOs and 15 close-ended NFOs (mainly FMPs). The 15 close-ended income funds collected Rs. 2,444 crore from the market while the 3 open-ended close ended funds collected Rs. 840 crore. The income category NFOs were Axis Income Saver, Canara Robeco InDiGo Fund and Peerless Income Plus Fund. The 2 open-ended Equity NFOs, mainly Mirae Asset Emerging Bluechip Fund and SBI PSU Fund collected a total of Rs. 705 crore. In other ETFs category, Motilal Oswal MOSt Shares M50 ETF collected Rs. 236 crore in its maiden NFO.

Source: MOSL Mutual Fund Desk

MF Industry saw a dip of Rs. 1.53 lakh cr; Equity also saw outflows

Indian Mutual Fund industry suffered a major jolt at the concluding month of fiscal year 2009-10. The Asset Under Management (AUM) for the month of March stands at Rs. 6,13,979 crore, a loss of Rs. 1,52,890 crore or 19.94 per cent over its last month figures. The industry saw a net outflow of Rs. 1,52,890 crore against a gain of Rs. 6,365 in the month of Feb. The Income category saw a maximum outflow of Rs. 1,64,487 crore or a loss of 34.57 per cent. Last month, this category had seen a net inflow of Rs. 4,887 crore. However, the Liquid/Money Market category has shown an improvement over its last month figures. The current month saw a net inflow of Rs. 3,971 crore. In Income Fund category, there have been net outflow as the banks have redeemed their investments from Mutual Funds following strict directives from RBI and SEBI. The major surge in Mutual Fund Industry AUM has been happening due to increased participation from banks. They have been keeping their surplus money with Mutual Funds as the credit off-take has been slow following the bleak economic. However, in the month of March, banks have reduced their Mutual Fund positions from Rs. 1,09,453 crore as on Feb 26, 2010 to Rs. 55,502 crore as on Mar 2010. In March 2009, the banks have total investments of Rs. 36,781 crore in instruments issued by Mutual Funds. Last year in Dec 2009, RBI issued a directive to all banks after banks increased their total investments in Mutual Funds to Rs. 1,69,236 crore. RBI argued that the money invested in Mutual Funds have been revolving in the system in the form of Certificate of Deposits (CDs) which banks have been placing with Mutual Funds. The category added three new income fund schemes. JP Morgan India Short Term Income Fund and Sundaram BNP Paribas Monthly Income Plan – Conservative & Aggressive were new schemes added.


On the other front, the Equity category AUM rose to Rs. 1,74,054 crore in Mar 2010 in comparison to Rs. 1,68,672 crore recorded last month, up by 3.19 per cent. However, in terms of total flows, it saw a net outflow of Rs. 2,016 crore. In the month of March, Fund Managers booked profits seeing stretched valuations of stock market. Moreover, they also distributed dividends rampantly. SEBI also banned the dividend distribution out of Unit Premium Reserve (UPR). It said that the dividend distribution amount must be from the profits booked by the scheme. Since the ban of entry loads, equity category has seen a constant outflow of its assets. However, the first two months of 2010 had seen some inflows. In fiscal year 2009-10, the equity category has seen a net inflow of Rs. 595 crore only. However, the overall Mutual Fund AUM has grown 47.13 per cent in FY 2009-10. Bharti AXA Focussed Infrastructure collected Rs. 41 crore from its NFO.

The ELSS category saw its maximum inflow in last 15 months. The category added Rs. 641 crore to its kitty. The inflows had been mainly due to tax-season month where investors put their money in ELSS to get tax rebate under Sec 80C of Income Tax Act 1961. It saw a total inflow of Rs. 1,554 crore in last one year.

The ETF category saw some major outflows in other ETFs category. While Gold ETF added Rs. 45 crore to its kitty, other ETFs category saw an outflow of Rs. 439 crore. Current the total AUM stands Rs. 957 crore, a loss of 28.69 per cent over its last month figures. Two ETFs were added to the category. Religare Gold ETF garnered Rs. 19 crore in its NFO period while Hang Seng Benchmark Exchange Traded Scheme added Rs. 55 crore from its NFO. Hang Seng ETF is the first international ETF being launched in India by Benchmark Mutual Fund.

Gilts saw a net inflow of Rs. 267 crore. Its AUM rose to Rs. 3,395 crore in the month of March 2010, a gain of 7.06 per cent over its last month figure. Given high borrowing programme, bond yields are poised to rise further. The category may saw some inflows in the months to come once the benchmark yield level reaches to 8.25 per cent to 8.5 per cent.

The industry also saw a herd of FMPs in the month of March 2010. A total of 69 schemes were launched which collectively garnered Rs. 14,642 crore. FMPs have seen a comeback after a brief lull. March sees the maximum numbers of new NFOs in FMP category as these products are launched mainly to avail the double indexation benefit, thus, minimizing the tax burden to investors on income earned.

MF Industry assets grew 51.6 per cent y-o-y

Highlights:
• Mutual Fund Industry assets grew 51.6 per cent on year-on-year basis; shrink by 4.6 per cent on month-on-month basis
• The AAUM touched Rs. 7.47 lakh crore as on Mar 2010; saw its historical high of Rs. 8.07 lakh crore in Nov 2009
• Reliance Mutual Fund (Rs. 1.1 lakh crore) continues to be the top fund house in terms of AUM
• SEBI dedicated fiscal year 2009-10 for investors bringing in many regulatory changes which changed the mutual fund industry trends
• Equity funds saw major outflows after the ban of entry loads
• Liquid Funds/Income Funds/Ultra Debt Short Term (erstwhile called as Liquid Plus Funds) will continue to see the inflows given the uneven interest rate scenario in near future

The fiscal year 2009-10 ended into a happy note with Mutual Fund Industry assets growing 51.6 per cent year-on-year. The industry added a total of Rs. 2.54 lakh crore to its kitty with total Average Assets under Management (AAUM) of Rs. 7.47 lakh crore. The year also saw Mutual Fund AUM’s historical peak of Rs. 8.07 lakh crore as on Nov 2009. However, it lagged the bellwether indices Sensex and Nifty 50 which clocked 80.54 per cent and 73.76 per cent returns respectively for the fiscal year 2009-10. On monthly basis, the Mutual Fund Industry Assets slipped to Rs. 7.47 lakh crore or a loss of 4.6 per cent over its Feb end of Rs. 7.82 lakh crore. The Feb month saw a hike of 2.64 per cent on monthly basis.
Reliance Mutual Fund continues to top the chart with AAUM of Rs. 1.10 lakh crore with a hefty gain of 36.4 per cent. The other leading fund houses in terms of AAUM are HDFC Mutual Fund (Rs. 88,780 crore), ICICI Prudential Mutual Fund (80,989 crore) and UTI Mutual Fund (Rs. 80,218 crore). On absolute basis, the fund houses which saw windfall gains are UTI Mutual Fund (Rs. 31,463.6 crore), HDFC Mutual Fund (Rs. 30,823.4 crore), ICICI Prudential Mutual Fund (29,556.3 crore) and Reliance Mutual Fund (Rs. 29,450 crore). The massive increase in AUM was mainly due to inflows in Debt/Income/Liquid/Liquid Plus categories. However, equity had a net outflow after SEBI banned entry loads post Aug 2009.
The fund houses which saw maximum decline on month-on-month basis are JP Morgan Mutual Fund (-31 per cent), AIG Global Investment Group Mutual Fund (-24.9 per cent), Deutsche Mutual Fund (-19.5 per cent) among others. The prominent gainers in double digits were Peerless Mutual Fund (60 per cent) and Edelweiss Mutual Fund (23.3 per cent).