MFs ad­ding a mil­lion sips a month

Aim for `100 tril­lion AUM by 2025

Banking Frontiers - - Mutual Funds - Me­[email protected]­ingfron­tiers.com

The to­tal AUM of the MF in­dus­try rose by 8% to `24 tril­lion in Novem­ber 2018 from `22.2 tril­lion the pre­vi­ous month, Rs24.3 tril­lion by Sep­tem­ber’18 and an all-time high of `25.2 tril­lion in Au­gust 2018.

FIN IN­STRU­MENTS AP­PEAL

With an in­crease in aware­ness on the re­turns that eq­uity mar­kets have given dur­ing the past few decades vis-à-vis gold and real es­tate, in­vestors are now ea­ger to par­tic­i­pate in the fi­nan­cial in­stru­ments. De-mon­e­ti­za­tion has fur­ther trig­gered the shift as ear­lier those not pay­ing the tax would chan­nel­ize the money into real es­tate or gold rather than fi­nan­cial in­stru­ments. Arun Thukral, MD, CEO, Axis Se­cu­ri­ties, says: “Post de-mon­e­ti­za­tion, GST and RERA, money has flown into the fi­nan­cial in­stru­ments such as MFs and in­sur­ance. We want to make aware new cus­tomers about the ben­e­fits of eq­uity.”

The un­der­stand­ing of fi­nan­cial as­sets is in­creas­ing among the In­dian re­tail in­vestors. Alok Singh, Chief In­vest­ment Of­fi­cer, BOI AXA In­vest­ment Man­agers, be­lieves: “The par­tic­i­pa­tion from small towns is still lower than big­ger cities mainly be­cause aware­ness lev­els vary in both the places. As more and more peo­ple start us­ing fi­nan­cial in­stru­ments for sav­ings, the gap be­tween big and small cities will get bridged over a pe­riod of time. We ex­pect a higher dou­ble-digit growth in this process in the years to come.”

SIP MO­MEN­TUM

In­dian MF cur­rently have about 25.2 mil­lion SIP ac­counts and the to­tal amount col­lected through SIP dur­ing Novem­ber 2018 was `79.85 bil­lion. AMFI data shows that the MF in­dus­try has added about 9.74 lakh SIP ac­counts each month on an av­er­age dur­ing the FY 2018-19, with an av­er­age SIP size of about `3200 per SIP ac­count. The monthly SIP num­bers stood around `75 bil­lion in July 2018 com­pared to `35 bil­lion in July 2017 and `15 bil­lion in late 2014. Axis Se­cu­ri­ties ex­pects the growth mo­men­tum to con­tinue. Thukral pre­dicts: “The MF in­dus­try’s as­set base is ex­pected to touch `100 tril­lion by 2025.”

SMALL CAPS RAC­ING

De­spite the re­cent sharp de­cline in small caps, the small cap cat­e­gory con­tin­ues to be the best per­form­ing eq­uity mu­tual fund cat­e­gory over the long run. Alok cites data: “Al­most a fourth of all com­pa­nies (77 out of 333) in the small cap uni­verse were multi bag­gers over 2013 to 2018. A higher pro­por­tion of small caps vis-à-vis large caps have com­pounded at 25% CAGR over the last 5 years. The small cap cat­e­gory re­turns have out-per­formed the BSE Small Cap To­tal Re­turn In­dex, (8.97%, 20.30%) over 3 years and 5 years as on Oc­to­ber 31, 2018.”

Higher re­turns may be at­trib­uted to these stocks re­main­ing out of the spot­light un­til they at­tain a note­wor­thy size in terms of rev­enues and prof­its. Alok adds: “In­ef­fi­cien­cies in price dis­cov­ery mean a higher po­ten­tial for bet­ter re­turns, as typ­i­cally lesser num­ber of sell side an­a­lysts track these com­pa­nies, and in­sti­tu­tional own­er­ship is low.”

Alok adds: “We be­lieve that the new small cap uni­verse of­fers greater op­por­tu­ni­ties for su­pe­rior al­pha gen­er­a­tion. Hence the small cap port­fo­lio is ex­pected to sub­stan­tially out­per­form the broader mar­ket in the long run.”

AMC TRENDS

As­set man­age­ment in­dus­try has shown strong growth in re­cent time. While two AMCs are listed in In­dian mar­kets as of now, there are more than 40 un­listed play­ers. Arun feels: “The con­cen­tra­tion is high in the in­dus­try. Ap­prox­i­mately 60% of the mar­ket share is held by the top 5 play­ers and this trend is likely to con­tinue in the com­ing few years. The in­dus­try is es­ti­mated to con­sti­tute around 5% of the GDP. Other de­vel­op­ing coun­tries have seen this pro­por­tion grow over time to ac­quire a larger share of the GDP and we can say that the In­dian mar­kets would fol­low the same course.”

The re­cent re-cat­e­go­riza­tion of mu­tual fund schemes al­lows only one fund per cat­e­gory by each AMC. This means that an AMC can launch funds only in the cat­e­gory where it does not have a fund presently. Alok ob­serves: “We are not ex­pect­ing too many NFOs go­ing for­ward. Most of the AMCs are ex­pected to launch NFOs if there is any prod­uct gap in their of­fer­ing.”

Alok singh ex­pects the small cap port­fo­lio to sub­stan­tially out­per­form the broader mar­ket in the long run

Arun thukral pre­dicts that in the cur­rent FY, SIPs will con­tinue to be a strong con­trib­u­tor

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