Mumbai: A surge in assets of Indian funds in April is unlikely to cheer industry players 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 to 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 Rs1.1 billion, their highest in a month since December, as investors booked profits taking advantage of a more-than-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 Rs1 trillion-plus investment,” Raman said.
Fixed income funds collectively mopped up Rs1.55 trillion, 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 Rs518.52 billion 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-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 a fourth of the industry’s assets, at the end of April typically charge 5-10 basis points as management fees from clients investing over Rs50 million—their main investors.
On the other hand, 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.
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.
“I think fund houses have started realising that the earnings are important and the earnings would come primarily through equity and long-term funds,” Dagade said.