BOMBAY — The Indian corporate world is currently inundated with results and more results. It is that time of the year when corporates, as well as, mutual funds, declare their second quarter (Q2) performance. And this glimpse into the report card, gives one some kind of an idea about the coming days.
This week, we take a look at the performance of the Indian mutual fund industry. This will indeed give you a fair idea about the future course of action which one might have to take.
Well, with the India stock markets remaining luke warm and confusing as ever, investors preferred to go for mutual funds. Infact mutual funds saw almost Rs.56.43 billion flowing in during April-September, with private sector mutual funds garnering maximum inflows.
According to Securities and Exchange Board of India, SEBI, the share of private funds in the industry has shot up to 50.22 percent, as against a meager 9.97 percent of the industry’s assets under management as of March 1999.
Over the last six months, private funds have seen almost Rs.109.98 billion flow into their kitty, while public sector funds saw a mere Rs.12.81 billion of inflows.
In contrast to the funds flowing into the rest of the industry, Unit Trust of India (UTI), saw a net outflow of Rs.66.36 billion. UTI which earlier was a synonym or even the generic name for mutual funds in India, ruling the industry with a 77.94 percent share, suffered a fall in its share in the industry plunging to 51.13 percent as of September 2002. Public sector funds have seen their share shrink from 12.09 percent to 8.4 percent, while the industry has grown by almost 56.8 percent.
But what did come as a surprise was that UTI’s new schemes managed to get inflows. The fund has got Rs.2 billion through its new schemes and has seen net inflows of Rs.5.11 billion in September alone. Infact it came quite a shock when UTI chairman, M. Damodaran, said the fund is only Rs.4 billion shy of last year’s full year achievement. A large chunk of the net inflows have come into UTI’s debt and gilt funds. The only equity fund that has seen some inflows is the index fund. Most of the fund’s new schemes will now be debt centric.
UTI says it will bring down its exposure in companies where its stake is over 10 percent. Currently, UTI has a stake of over 10 percent in about 60 companies. Its highest holding is in Manglam Cement at over 30 percent. In order to streamline work flow, the trust has also implemented a fully integrated fund management system, which will enable an audit trail.
What this means is that despite so many imbroglios surrounding UTI, the largest mutual fund of India continues to attract investors and its trust amongst the investors is not exactly wiped off. Indeed, it is no exaggeration which it is said that Indians have immense tolerance and patience levels!
And now that we have seen that the last six months did see mutual funds getting a major chunk of the investors money, it would be quite interesting to follow the money trail and find out where exactly these monies have been invested.
According to data released by SEBI, funds have flowed out of equity and balanced schemes into debt schemes. Debt schemes have registered an inflow of Rs.64.17 billion during April-September, while both equity and balanced schemes have registered negative numbers. Balanced schemes witnessed an outflow of Rs.7.47 billion.
Equity schemes showed an outflow of Rs.200 million largely owing to money flowing out of equity-linked saving schemes. ELSS have witnessed an outflow of almost Rs.5.32 billion, while other equity schemes have over Rs.5.11 billion flowing in. Debt schemes account for 74.14 percent of the total assets managed by the industry, while equity and balanced schemes account for 13.6 percent and 12.26 percent, respectively.
So the inference which one can draw from this revelation is that investors still prefer the stable and secure debt funds. These funds, have no doubt, provided the much needed succor when the going was bad but in the days to come, will debt funds continue to rule the rooster? There is no doubt that the returns from debt funds are definitely going to come down.
But then what is the next best alternative? Obviously, bank fixed deposits. Yet, despite returns from debt funds expected to lower, debt mutual funds are better than bank fixed deposits.
Over the last five years, debt mutual funds have consistently outperformed bank fixed deposits. The returns from debt funds are expected to be in the region of 8-10 percent in the current fiscal as against 16 percent in the previous fiscal. But even if it is 8-10 percent returns, that is higher than the 6-7.5 percent one year fixed deposit, FD, rates that exist today.
So, even if the returns from debt mutual fund has come down as interest rates moved down, the bank FD rate too has come down. Hence, debt funds continue to remain better and more prudent investment options. So all those of you who have invested in debt funds, should remain invested!
— 21 October 2002
