Mumbai: Asurge in assets of Indian funds in April is unlikely to provide cheer as almost the entire Rs1.5 trillion net inflow came into low-margin liquid funds, while flows into profitable stock funds turned negative. Assets under management of Indian mutual funds rose 42.23% to Rs5.9 trillion in April as compared with a record 18% drop a month earlier as banks and corporates returned to park money in fixed income funds.
Equity funds, meanwhile, saw a net outflow of Rs110 crore, their highest in a month since December, as investors booked profits taking advantage of an at least 17% rise in India’s benchmark index in April.
“If you take a hard look, it doesn’t mean much because there is no embedded value in this kind of money, it’s not going to stay permanently with you,” T.P. Raman, managing director of Sundaram BNP Paribas Asset Management, said. “It’s mostly bank investments which have really given this one lakh crore (Rs1 trillion)-plus investment,” he said.
Fixed income funds collectively mopped up Rs1.55 tillion, including Rs1.03 trillion in income funds, mostly in ultra short-term schemes, the highest ever since mutual funds data was made available in late 1999.
The inflow included a record Rs51,852 crore in money market funds as banks, flush with liquidity following government spending ahead of national elections, debt redemptions, interest payments and slower loan growth, parked surplus cash in funds.
Domestic banks’ outstanding investments in mutual funds stood at Rs1.02 trillion on 24 April, central bank data showed.
This could quickly change, draining out billions of rupees from funds, as lending picks up in a changed investment climate after India last week voted to power a Congress party led government, shorn of Left allies, with a decisive mandate.
Even if these assets were not to see a sharp fall, margins would still remain low for mutual fund firms.
“The money market and money market plus funds assets helps to boost the total assets for the fund house, but not earnings, unless the assets are significant,” Chintamani Dagade, a senior research analyst with Morningstar India, said.
Money market funds, which managed Rs1.4 trillion, or nearly one-fourth of the industry’s assets, at the end of April typically charge 5-10 basis points as management fees from clients investing at least Rs5 crore. Equity funds and longer maturity bond funds charge around 50-75 basis points from large clients and as much as 100 basis points from retail investors. One basis point is one-hundredth of a percentage point.
Both stock and longer maturity bond funds investing in government securities saw outflows in April, data from the Association of Mutual Funds in India showed.