PowerMF Blog – Empower Yourself

Mutual Fund as an investment vehicle is one which will enables retail investors, who do not have either knowledge or time or both for managing their investments to pool in the investments which is managed by professional fund managers. In light of the above, equity investments with its complexities and time requirements makes it ideal for retail investors to go through the mutual fund route.

In light of this, a review is being attempted in this blog on the position of the investments in the equity schemes in Indian Mutual Funds. This is in continuation to my earlier blog on ‘Indian Mutual Funds (2000-2009): A Decade to Remember.

As brought out in the earlier blog, the AUM of Equity Schemes has grown from a meager Rs. 24,288 cr. to a staggering Rs. 196,691 cr. in the last 10 years. Over 7 time increase in 10 years is no mean feat. What is more interesting is to look at this growth from the number of investors whom the Industry services. Equity schemes being retail in nature compared to other products accounts for around 90% of the investors in the industry. Hence, a number of around 25 lac investors have moved to over 400 lacs, a 8 fold increase which again is no mean feat.

Further, the number of equity schemes in the market has moved up from around 70 schemes in 1999 to over 380 schemes in 2009 and the major part of the growth happened during the period 2004-2008. It was only in 1993 when the launch of equity schemes commenced with Private & International AMCs being set up.  The period between 1999 & 2000 saw various technology and other specialty and sector based funds being launched, 2004-2008 saw a spate of NFOs which garnered large AUMs at the time of the launch itself and more importantly attracted a large number of new investors in to the Mutual Fund system.

It gives an interesting study to look at the AUM of a scheme vis-à-vis the age of the scheme. The tables below provide the necessary data.

From the above chart, we can clearly see that 67% of the AUM is held by the schemes having assets over Rs. 1000 cr. Age wise analysis of these schemes give an interesting insight:

As brought out in the table, while around 40% of the schemes have over 5 year vintage, 60% of the schemes were relatively new schemes with less than 5 years of existence. A further review of the schemes launched over 10 years back gives a more interesting perspective. By the end of 1999, there were 70 equity schemes with the assets around Rs. 25K cr. The same schemes assets as of date Rs. 62K cr. representing a growth of around 150%. It may be noted that during the same period, the Sensex moved from 5000 points to 17500 points representing 2.5 times growth over the 1999 numbers. This provides an interesting insight. Over the last 10 years, most of the schemes in this list of 70 schemes have maintained performance better than the index or at least in line with the index. Hence, actually, the above numbers represent that the money has gone out of these schemes.

On the other hand, the schemes launched between 2004 and 2008 have been able to attract AUM. While many of these schemes have lost AUM post their NFO, still the long term impact on these schemes will have to be seen. One interesting perspective is that the performance of the older schemes are still in line with the newer schemes. It seems that there is an attraction for the new in spite of the old schemes still performing better. This may be attributed by some to churning of portfolio and such other practices. However, what is interesting to see is that the attraction of NFOs seems have died down over the last couple of years. This coupled with the new guidelines of distributors having to get advisory fees from the investor is expected to change the trend. An interesting time ahead which promises to reverse the trend of New for Old to Good for Average irrespective of the age of the scheme.

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