India’s Mutual Fund industry sets record for assets under management

The Indian mutual fund industry achieved a milestone in May as total assets under management hit a record high, but things were less rosy for the crucial equity sector.

Equity assets under management declined for the 11th time in 12 months as the stock market continued to be caught in a sideways movement.

“Equity funds saw outflows of Rs 3400 cr in May compared to around Rs 300 cr in April, the highest for the category in eight months .. as investors continued to book profits,” Crisil Research pointed out.

In May, the CNX Nifty index of 50 stocks on the NSE gained around 1%. So far this year, it has gained only 1.37%. Equity assets declined by Rs 3200 crore or 1.8% in May to Rs 1.75 trillion. There was a Rs 200 addition as a result of market appreciation.

The share of equity assets in the overall mutual fund assets in India fell to about 20% during May.

Despite the lack-lustre performance by equities, the overall AUM rose 5% month on month or Rs 42,900 billion to an all-time high of Rs 8.68 trillion.

The biggest gainer, in terms of assets under management (AUM) was Income (or debt) funds. They rose by Rs 25,000 cr or 6% to a 3-year high of Rs 4.47 trillion, led by inflows of nearly Rs 21,000 cr plus mark to market gains.

The reason for the gain was companies. “Most of the inflows were into short term and ultra short term debt funds as banks and corporates re-invested their funds in these short maturity categories,” Crisil pointed out.

Assets of liquid funds, which can offer little return, too were up by Rs 21,700 cr to a 25-month high of Rs 2.06 trillion, led by inflows of Rs 20,700 cr in May plus mark to market gains.

“Inflows in the category are part of the historical trend, which sees outflows in the quarter-end month and subsequent inflows in the following two months (March saw outflows while April and May have seen inflows). Improved liquidity in the banking system also supported the inflows,” Crisil said..

After a sharp rise in AUM of around 14% in April, gilt funds saw profit booking in May. The category saw outflows of nearly Rs 5 bn in May, the highest since Rs 1061 cr of outflows seen in July 2009. Accordingly, gilt funds’ assets declined by Rs 255 cr to Rs 8900 cr at the end of May.

“AUM losses were lower than outflows owing to mark to market gains in the underlying funds. Gilt prices have gained over the year as the Reserve Bank of India cut interest rates four times since April 2012. The current calendar year witnessed three interest rate cuts of 25 basis points (0.25%) each. Interest rates (gilt yields) and prices (fund NAVs) move in opposite directions.

“Accordingly, as interest rates fall, gilt prices and fund NAVs rise to generate higher returns for these funds. Long term gilt funds that were part of the March 2013 CRISIL Mutual Fund Ranking returned 15.19% gains over the past one year and 6.23% in the past three months until May 31, 2013.” Crisil pointed out.

The data was released the Association of Mutual Funds of India or AMFI.