AUMs growing, but fund managers ain’t excited

Assets under management in the mutual fund continued to grow at a fast clip in FY07. But head honchos at most asset management companies are not smiling. That is because the growth has been driven by a surge in debt assets rather than the lucrative equity assets.

The industry AUM grew 40% in 2007, but the growth in equity assets — on which the AMCs get to charge the maximum fees — saw a growth of only 24%. This has implications for the bottomlines of AMCs, and subsequently on the salary hikes and bonuses.

Last year, overall assets had grown by 55%, while equity assets grew 158%, driven mainly by new fund offerings and a buoyant stock market. Most fund houses in the top 10 list saw assets growing by more than 50%. Reliance Capital managed to grow its average assets at the fastest pace by 128% in 2007 as compared to the previous year. The other fast growing fund houses include ICICI Prudential (66.3%), HDFC (51.8%), SBI (58.2%), and DSPML (57.7%). Says Milind Barve, managing director of HDFC AMC, “Product mix is important in the contribution towards profitability.

To give some ballpark figure, over 70% of our fee income comes from equities.” He said HDFC Mutual Fund’s equity assets have grown 70% in 2007. FMPs have been a rage in the past six months, thanks to the rising interest rate scenario. While it boosts an AMC’s assets, it is not very profitable proposition as these products earn management fees in the range of 0.04-0.07% per annum.

Equity funds, in contrast, earn anywhere from 0.65-0.95% p.a. These fees are generally charged to the net asset value of schemes on a daily basis based on average fund assets.

The not-so-buoyant equity markets situation did not help matters either. In 2007, equity NFOs collected Rs 18,660 crore, half of what they managed to collect in the previous year.

While benchmark indices have appreciated over the past year, the rise has been driven by a handful of stocks. Thus, the NAVs of most schemes have been subdued. The top three rankings in terms of profitability is expected to see a change this year.
Reliance MF, with the largest equity assets in the industry, is expected to wriggle itself into the top three.

Also, its average asset grew 128% in 2007, the fastest in the industry. Last year, the top three positions were held by UTI followed by HDFC and PruICICI. In 2006, while UTI made a profit after tax of Rs 133 crore, HDFC, PruICICI and Reliance net profits were Rs 46 crore, Rs 31 crore and Rs 29 crore, respectively.

Among the top fund houses, DSPML and SBI could grow its profitability at a faster pace than the rest. DSPML’s equity assets grew by 109% to Rs 5,430 crore in 2007. Says S Naganath, president and CIO of DSP ML, “Bulk of our asset growth has been on the equity side. While in 2005 we didn’t launch any fund, this year’s inflows have come not only from NFOs, but also through existing equity schemes.”

DSPML had launched DSPML small and midcap in September 2006 which collected Rs 1,500 crore. SBI One India fund collected Rs 1,900 crore of assets. According to Valueresearch data, in terms of equity assets, Reliance leads with Rs 17,506 crore followed by UTI MF (Rs 13,142 crore) and Franklin Templeton (Rs 12,920 crore).
muthukumar.k@timesgroup.com

Among the other top funds with assets above Rs 10,000 crore include ICICI Prudential, HDFC and SBI. The overall fund assets for the industry is Rs 3,26,288 crore of which roughly one-third is equity assets.

ET INTELLIGENCE GROUP