Mumbai: The average assets under management, or AUM, of Indian mutual funds fell for the third successive month in November to its 18-month low, pulled down by fall in value of stocks and redemptions in debt funds.
According to data released by industry body Association of Mutual Funds of India, AUM for November stood at Rs4.02 trillion, down 7% since October. Only two of the 37 fund houses in the country—Tata Asset Management Ltd and UTI Asset Management Co. Ltd (AMC)—have shown increase in AUM in November.
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The Sensex, India’s most tracked equity index, fell 7.1% in November as foreign institutional investors continued to pull out money. Equity assets account for a quarter of the total assets under management of the Indian mutual fund industry.
Analysts said the industry has been hurt more in the debt segment. “While there has been a decline in redemptions, (compared with the last two months), the recycling of money that happens in the fixed maturity plans (FMPs) segment has virtually come to a halt,” said Dhirendra Kumar, chief executive officer (CEO) of Value Research India Pvt. Ltd, a New Delhi-based mutual funds industry tracker.
Many FMPs are of one- or three-month maturity and on redemption investors typically reinvest this money elsewhere. In the last two months, however, this stopped as liquidity crunch continued and fears of defaults by real estate firms rose. Many FMPs have aggressively subscribed to short term papers of such firms.
“There was a flight to quality and a flight to safety,” said Jaideep Bhattacharya, chief marketing officer of UTI AMC, which overtook ICICI Prudential Asset Management Co. Ltd to become the third largest fund house in India with assets under management of Rs38,358 crore. The liquidity situation was much better in November compared with the previous two months, he said.
Liquidity has improved following a slew of measures by the Reserve Bank of India. It cut the cash reserve ratio, or the portion of deposits that banks are required to keep with it, by 350 basis points, releasing Rs1.4 trillion into the financial system. It also cut the statutory liquidity ratio or the portion of deposits banks need to invest in government bonds by 100 basis points, releasing Rs40,000 crore more.
“Liquidity has improved, but it’s just sufficient,” said Sandesh Kirkire, CEO of Kotak Mahindra Asset Management Co. Ltd. “Bank lending is yet to increase.” “Fresh money in equity new fund offers is hardly coming,” said Hemant Rastogi, CEO of Wiseinvest Advisors Pvt. Ltd, an investment advisory firm. “We are not seeing much inflows in debt too.”
With another round of advance tax payments due in the first fortnight of December, analysts expect the trend of falling AUM to continue.