Implementation of Regulations on medical devices and in vitro diagnostic medical

Category

Net

inflow/outflow in May

AUM

Income 10,096 473887

IDF - 1082

Equity 2452 189200

Balanced -83 14728

Liquid/Money

market 22010 282700

Gilt -318 5694

ELSS -430 28034

Gold ETFs -341 7781

Other ETFs 576 4829

Fund of Funds - 3167

Total 33962 1011102

43 | P a g e TABLE 2:- RESOURCE MOBILISATION BY PRIVATE AND PUBLIC SECTOR BY MUTUAL FUNDS

$ indicates as on February 28, 2014.

SOURCE: SEBI

Above TABLE II indicates mobilization of funds from private and public sectors other than UTI investment to Indian mutual fund industry. Funds mobilized from 54,928 crores in 2009-10 to 1,33,697 crores in 2013-14 by private sector. Public sector contributed from 12,499 crores in 2009-10 to 16,216 crores in 2013-14. Private sector contributed greater than public sector to mutual funds. As per above data, it is observed that private sector is playing a vital role in economic development.

Growth in Markets

* Source: BSE Sensex and NSE Nifty data as on December 2013

44 | P a g e In comparison to global markets, India‘s AUM penetration as a per cent of GDP is between 5-6 per cent while it is around 77 per cent for the U.S., 40 per cent for Brazil and 31 per cent for South Africa. Despite the relatively low penetration of mutual funds in India, the market is highly concentrated. Though, there are 44 AMCs operating in the sector, approximately 80 per cent of the AUM is concentrated with 8 of the leading players in the market. There have been recent instances of consolidation in the market and market concentration is expected to remain in the near-term.

Market Share of leading Mutual Funds (basis AUM)

* SOURCE: AMFI

Products and Investors

Indian stock markets have experienced inconsistent returns in the recent past. Higher inflation and inconsistent economic growth has worried the retail investor who is now concerned about assured returns in such a scenario, the investor would divert their funds from the equity market to liquid/money market and debt AUM as also depicted in Figure 3.

45 | P a g e Fig. 3: AUM Composition by Product Category

SOURCE: AMFI (Data as of September 2013)

The equity-debt mix is determined largely by the performance of the capital markets and interest rate cycles. AUMs in debt and liquid money market funds have seen an increase in FY14 due to the anticipation of RBI rate cuts and desire for investors to seek a fixed return. Debt oriented products (investing in debt instruments with maturity > 3 months) have gained most traction in terms of absolute net new money, with an absolute increase in AUM of ~INR 1,000 billion indicating a clear shift in investor interest from equity in recent times. Gold ETF‘s have grown at an extremely fast pace over the last few years albeit from a much smaller base (CAGR of over 90 per cent from FY10- FY13). These have gained popularity due to the popularity of gold as an investment for Indians as well as due to the lowering of administrative charges and distribution expenses which makes it easier for the product to be distributed as well.

As Figure 4 indicates, industry composition of AUM is driven primarily by the corporate segment.

46 | P a g e Fig. 4: AUM Composition by Investor Segment

Source: AMFI (Data as of September 2013)

Corporate investments constitute around 49 per cent of AUM with a focus on debt/money market funds for the purpose of short term returns and liquidity management.

Retail share of AUM is 20 per cent and is expected to rise driven by increased investor awareness, product penetration and greater distribution reach. High Net worth Individual

(HNIs) have emerged as the fastest growing investor segment growing at a rate of ~ 20 per cent over the period of FY10- FY13 with a preference for debt oriented funds.

However, AUM growth largely remains restricted to the top 5 cities in India viz. Mumbai, Delhi, Bangalore, Chennai and Kolkata (contributing ~ 74 per cent of AUM as of September

2013). The top 35 cities continue to contribute around 90-92 per cent of the industry AUM.

47 | P a g e AUM distribution by AMCs

Industry AUM composition by Geography

SOURCE: AMFI (Data as of September 2013)

Despite constant endeavor of the regulator to increase penetration of mutual fund products beyond top 15 cities, the AUM composition has only marginally changed since

SEBI directive on additional TER on inflows from smaller cities was implemented in October 1st, 2012. Contribution from the B-15 cities has remained at around 13 per cent for the last two years. Drivers like lack of financial education and awareness, limited distribution network, cultural bias towards physical assets are some of the key impediments to growth in B-15 cities.

In order to increase the geographical reach of mutual funds, the fund houses are now allowed to charge an extra load of 30 basis points from existing schemes1 subject to meeting certain conditions. The regulation has incentivized fund houses to push mutual fund products in cities beyond the top 15. The term B-15; it is short for beyond top 15 cities

The B-15 cities are: Jaipur, New Delhi, Chandigarh, Kanpur, Lucknow, Hyderabad, Bangalore, Chennai, Kolkata, Ahmedabad, Surat, Vadodara, Panjim, Pune, Mumbai.

48 | P a g e There are total 44 mutual funds. A brief snapshot of the balance 26 fund houses are listed below sorted on the AUM.

HDFC Mutual Fund 1066 Mar-14 109890.71 Dec-13 104326.69 5564.02

Reliance Mutual Fund 809 Mar-14 100979.16 Dec-13 99083.55 1895.61

ICICI Prudential Mutual Fund

1168 Mar-14 100145.64 Dec-13 89660.6 10485.0 4

L&T Mutual Fund 280 Mar-14 17495.33 Dec-13 15941.35 1553.98

Deutsche Mutual Fund 440 Mar-14 17264.66 Dec-13 16938.81 325.85

Axis Mutual Fund 236 Mar-14 16123.6 Dec-13 14470.74 1652.86

49 | P a g e

JP Morgan Mutual Fund 155 Mar-14 15196.56 Dec-13 11825.65 3370.91

Sundaram Mutual Fund 391 Mar-14 15153.01 Dec-13 14270.41 882.6

Religare Invesco Mutual Fund

270 Mar-14 13523.65 Dec-13 12363.52 1160.13

LIC Nomura Mutual Fund

195 Mar-14 8989.6 Dec-13 8348.48 641.12

Baroda Pioneer Mutual Fund

104 Mar-14 7701.78 Dec-13 6586.74 1115.04

HSBC Mutual Fund 173 Mar-14 7483.98 Dec-13 7482.17 1.81

Canara Robeco Mutual Fund

124 Mar-14 6603.96 Dec-13 7009.99 -406.03

JM Financial Mutual Fund

125 Mar-14 5977.56 Dec-13 7068.66 -1091.1

IDBI Mutual Fund 131 Mar-14 5698.74 Dec-13 4829.82 868.92

Principal Mutual Fund 128 Mar-14 4121.49 Dec-13 4526.72 -405.23

Peerless Mutual Fund 56 Mar-14 3924.29 Dec-13 3297.74 626.55

Goldman Sachs Mutual Fund

24 Mar-14 3764.11 Dec-13 3846.74 -82.63

50 | P a g e

Chapter 4