Tag: AMFI

Mutual fund distributors may earn trail commission on transferred assets: What it means for investors?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Association of Mutual Funds in India (AMFI) has reportedly announced a change in its policy regarding trail commissions for mutual fund distributors. This move is expected to have implications for both distributors and investors in the mutual fund market.

Previously, when investors switched from one distributor to another, no trail commission was paid for the transferred assets.

However, AMFI’s latest notice to members reveals that mutual fund distributors will now be eligible to receive trail commission from asset management companies (AMCs) on such transferred assets, after a cooling-off period of six months.

Understanding trail commission

Trail commission is a form of compensation paid to mutual fund distributors for the ongoing assistance, advice, and services they provide to investors.

It is typically a percentage of the assets under management (AUM) and serves as an incentive for distributors to offer continued support and guidance to clients over the long term.

Here’s a breakdown of the key points outlined in the notice:

Payment structure

AMCs may now allow trail commission to distributors on transfers initiated by investors, with the payment being based on the lower commission rate of the transferor and the transferee distributor.

Exclusions

Apart from trail commission, no other payments of any nature, including incentives, will be made on account of the change in distributor.

This implies that any additional incentives or commissions related to the distributor switch will not be permitted.

Review of the existing rule

The decision to revise this rule comes after receiving requests from mutual fund distributors to reconsider the previous guideline, which was introduced a decade ago to address specific market practices.

The AMFI believes that the circumstances prompting the original rule may no longer be prevalent and that the transferee distributor provides the same level of support and service to investors on transferred assets.

Implementation

The payment to the new distributor will be based on the lower commission rate applicable on the date of the distributor code change, ensuring a fair and standardised approach to commission payments.

Investor impact

For investors, this change could potentially lead to more flexibility in choosing distributors, experts say.

The policy change is expected to foster healthy competition among distributors, as they vie to attract and retain investors by offering superior services.

This competition can lead to improved customer service too, better investment advice, and more comprehensive support for investors.

Investors switching distributors may now benefit from continued support and services without incurring additional costs.

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These mutual funds may be hit the most by AMFI’s advisory on mid, small-cap funds

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Mutual fund regulator turns cautious on small and mid-cap schemes — here’s why

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Taking cognisance of a significant influx of funds into small and mid-cap segments, the Association of Mutual Funds in India (AMFI) has issued an advisory to mutual funds, said DP Singh, Deputy Managing Director (MD) at SBI Mutual Fund on Wednesday, February 28.

AMFI’s cautious approach reflects the industry’s efforts to navigate the challenges posed by the heightened interest in these specific fund categories.

DP Singh emphasised these discussions revolve around protecting investors’ interests, even though the Securities Exchange Board of India (SEBI) hasn’t given any directive. 

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

SEBI asks small, mid-cap funds to disclose more information about risks

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Securities Exchange Board of India (SEBI) has asked the country’s asset managers to give investors more information about the risks associated with their small and mid-cap funds, according to a fund manager and two people with knowledge of the matter.

Small and mid-sized funds have seen high inflows, causing concern among authorities about how they would hold up in the event of a sharp market selloff.

The Securities & Exchange Board of India (SEBI) has also been reviewing stress tests conducted by such funds, sources have previously said.

The funds are being asked to disclose how long it might take to accommodate large redemptions, what impact large outflows could have on the value of the portfolio and how much cash and liquid assets the fund holds to meet outflows, the people said.

”Investment committees were always aware of liquidity challenges but investors were not. Once this information is available to them, they can compare each fund,” said Harsha Upadhyaya, chief investment officer at Kotak Mutual Fund.

The Association of Mutual Funds in India (AMFI), which is working with SEBI, is proposing a standardised format for the disclosure of risks, he said, adding that the disclosures would be made on a regular basis.

SEBI and AMFI did not immediately respond to requests for comment.

Heavy inflows have sent the Nifty small cap 250 index surging 71% over the past 52 weeks and lifted the Nifty mid cap 100 index 64%. That far exceeds the benchmark Nifty’s 28% rise.

Funds are likely to begin making these disclosures from April, said one of the sources who was not authorised to speak to media and declined to be identified.

Mutual funds tend to keep between 1% and 5% of their assets as cash as a prudent measure to meet outflows, according to public documents. There is, however, no minimum regulatory requirement.

Funds need to invest at least 65% of their assets in small-cap stocks to be categorised as a small-cap fund and the remaining 35% can either be in cash or invested in large-cap stocks. The rule is similar for mid-cap funds.

”In some cases, the funds do not have enough cash. While in others, funds are fully invested in small/midcap stocks with no prudent investments in large-cap stocks,” said the second source.

In India, small-cap stocks are defined as those with market caps of less than 50 billion rupees while mid-cap stocks are those with market values of between 50 billion and 200 billion rupees.

Kotak small-cap fund, has put temporary restrictions on inflows, saying that ”momentum chasing” is ”over-shadowing the caution required”.

Last year, Tata Mutual Fund and Nippon India Mutual Fund stopped accepting lumpsum investments in their small-cap funds.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Large-cap mutual funds garner ₹1,287 crore in January on profit booking

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Investors flocked to large-cap oriented mutual funds with an influx of ₹1,287 crore in January, making it the highest fund infusion in 19 months, as a significant run-up in small and mid-caps prompted them to book profit. This is a huge turnaround following a net outflow of ₹281 crore in December. Also, the quantum was 80% higher than inflows of ₹716 crore in January last year.

The latest inflow helped push the asset base of the large-cap equity category by 26% to ₹3 lakh crore at January-end from ₹2.38 lakh crore a year ago. According to the latest data by the Association of Mutual Funds in India (Amfi), equity mutual funds focused on large-cap received inflow to the tune of ₹1,287 crore in January. This was the highest level since July 2022, when the category saw an inflow of ₹2,052 crore.

Given the significant run-up in small and mid caps, investors are booking some profits and rebalancing into large-caps, Kaustubh Belapurkar, Director – Manager Research at Morningstar Investment Research India, said.

Akhil Chaturvedi, Chief Business Officer, Motilal Oswal AMC, said,”Large- caps demonstrated positive contributions in January, reversing the net outflows experienced in December 2023. This shift in trend is in line with valuation differentials among large v/s mid and small caps, suggesting that large caps or flexi caps oriented schemes may attract higher flows in the future”.

Before the outflow in December 2023, the category attracted ₹307 crore in November and ₹724 crore in October. Overall, equity schemes saw an inflow of ₹21,780 crore in January this year making it the highest monthly infusion in nearly two years. The latest flow was about 28% higher than inflows of ₹16,997 crore in December.

Besides, mid-cap oriented funds and small-cap focused funds continued to attract investors with inflows of ₹2,061 crore and ₹3,257 crore, respectively. Feroze Azeez, Deputy CEO, Anand Rathi Wealth Ltd, said that in FY2024, until December, the total outflow hovered around ₹4,949 crore from large-caps. During the same period, small-caps received inflows of ₹34,103 crore.

ALSO READ | SIP inflows cross ₹18,000 crore for the first time in January

For FY2024, large-caps have delivered an absolute return of 28%, whereas small-caps delivered over 60%. Given that this would have created portfolio allocations biased towards mid and small as well as huge run-up in small relative to large, allocations moving towards large-cap is justified, he added.

“With mid-caps at 15% and small-caps at over 20% premiums, investors are realising the considerable valuation gap with the large-cap segment, and accordingly making adjustments to their investments,” Gopal Kavalireddi, Vice President of Research at FYERS, said.

The growing interest in large-cap funds could be seen in the rising number of investor folios, both on a month-on-month and yearly basis. Year-on-year, folio numbers surged by over four lakh to 1.33 crore in January, while on a month-on-month basis, there was an increase of 1.45 lakh folios.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Debt mutual fund inflows surge in January: Is it the right time to invest?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In a turnaround, debt mutual funds experienced an inflow of ₹76,468.96 crore in January 2024, marking a significant shift from ₹75,559.93 crore outflow witnessed in December. The latest data from the Association of Mutual Funds in India (AMFI) reveals a positive trend for the debt fund segment.

Industry experts believe that time is ripe to take exposure into some debt categories as the interest rate scenario eases across the globe.

Liquid funds emerged as the frontrunners, recording the highest inflows at ₹49,467.67 crore, a stark contrast to the ₹9,675.27 crore outflow recorded in December.

Money market funds followed closely behind, registering the second-highest inflows at around ₹10,651.05 crore. This renewed interest in money market funds suggests a growing preference for safer investment options, aligning with the broader market sentiment.

Gilt funds, that investment advisors are saying are well placed at the moment, saw inflows close to ₹500 crore in January.

Industry experts attribute this positive shift to various factors, including improved economic indicators, easing concerns over interest rates, and a general appetite for debt instruments in a stabilizing market environment.

Investors seem to be recalibrating their portfolios, finding value in certain debt fund categories after a period of cautious retreat.

The funds saw a spike in returns after the recent slump in yields post the Interim Budget.

Following the budget announcement, gilt funds experienced a surge in the value of their holdings by an average of 0.65% on Budget Day.

Simultaneously, dynamic bond funds reported an average increase in net asset value (NAV) of 0.51 percent, according to data from Value Research.

The Interim Budget, revealed on February 1, played a pivotal role in shaping this positive trajectory. The lower-than-anticipated borrowing plan announced in the budget led to an 8-basis-point decline in the 10-year government bond yield to 7.04%.

Market experts and investment advisors believe that the long duration bond funds and gilt funds have a positive outlook for this year and hence can be a good investment option.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

SIP inflows cross ₹18,000 crore for the first time in January

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In January 2024, systematic investment plans (SIPs) witnessed a surge, reaching an all-time high of ₹18,838 crore, indicating a significant uptick from the previous month’s ₹17,610 crore. The robust growth in SIP inflows is complemented by an increase in the number of new SIP registrations, setting a milestone at 51.84 lakh.

According to the Association of Mutual Funds in India (AMFI), the SIP assets under management (AUM) for January 2024 stood at ₹10.26 lakh crore, showcasing an increase compared to December 2023’s ₹9.96 lakh crore.

The number of SIP accounts also reached 7.92 crore, up from 7.63 crore in December 2023.

Venkat Chalasani, Chief Executive of AMFI, expressed his insights on the January 2024 data. “As we reflect on the latest data within the mutual fund industry, it is abundantly clear that we are in an era of growth and participation through financial savings instruments.”

He highlighted the surge in SIP accounts and the milestone of over 51.84 lakh new SIP registrations, emphasising the commitment of investors towards disciplined wealth creation.

“Moreover, the industry’s net AUM soaring to ₹52.74 crore further accentuates the resilience and potential of mutual funds as a preferred investment avenue,” he added.

Chalasani also underlined the sustained retail participation across the country, attributing it to increasing financial literacy and recognising the crucial role played by Asset Management Companies (AMCs) and dedicated distributor fraternity in fostering a culture of informed investment.

Addressing the ongoing regulatory reforms and the industry’s shift towards SIPs, Chalasani expressed confidence in the Indian mutual fund industry’s trajectory of sustained growth and relevance.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Small cap inflows dip in January, large and midcap funds shine: Where should you invest now?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Equity mutual funds have continued their upward trajectory, marking the 35th consecutive month of inflows. According to data released by the Association of Mutual Funds in India (AMFI), the latest figures for January 2024 reveal a surge in inflows, reaching ₹21,749 crore.

However, a closer look at the data reveals interesting dynamics within different categories of equity mutual funds.

In January, small-cap funds witnessed an inflow of ₹3,257 crore, reflecting a marginal decline from ₹3,857 crore in December 2023.

On the other hand, largecap funds witnessed inflows of around ₹1,287.05 crore as against an outflow of ₹280.94 crore in December.

Mid-cap funds, however, emerged as a focal point of increased investor interest, with an inflow of ₹2,061 crore in January, up from ₹1,393 crore in the previous month.

The shift in preferences among investors has sparked discussions within the industry about the factors driving these changes.

Sunil Subramaniam, MD & CEO of Sundaram Mutual Fund, highlighted the premium positions of midcaps and smallcaps, stating, “The midcaps are at a 14% premium, and smallcaps at a 22% premium. So from a retail investor’s perspective, I think the guidance from the AMCs, or its distribution partners, has been very good.”

He also emphasised the success observed in the large-cap and larger midcap flows, attributing it to robust Systematic Investment Plan (SIP) numbers and a continued trend of investors taking a medium-term view of the market.

Anthony Heredia, MD & CEO of Mahindra Manulife Mutual Fund, provided insights into the evolving trends, stating, “This is the first couple of months we are seeing a reasonable decline in the smallcap. In fact, more than the net flow, look at the gross flow. The gross flows on smallcaps are less than 15% of the total flows.”

He suggested a shift in investor focus towards large and midcap funds, as well as flexi and multicap funds, which he views as key products in the current market landscape.

In light of the data, industry experts see opportunities for fund managers to diversify.

Subramaniam noted the favorable conditions created by the significant Foreign Investor Investment (FII) outflow of ₹25,000 crore in January, presenting a valuable opportunity for fund managers to pick up quality stocks that were sold off.

Despite the Reserve Bank of India’s decision to maintain the status quo on various bank rates and continue with a withdrawal of accommodation stance, Gopal Kavalireddi, Vice President of Research at FYERS said that the equity market remains subject to both domestic and international data points and events that could induce volatility.

As the current earnings season shows signs of improved operational management by companies, Kavalireddi advises investors not to be unduly worried.

Instead, he suggests reallocating capital by diversifying investments appropriately across undervalued asset classes and geographies.

In a market influenced by both positive and challenging factors, this strategic approach can help investors navigate uncertainties and capitalise on opportunities.

Melvyn Santarita, Analyst, Morningstar Investment Research India Private Limited suggested investors to note that while both the midcap and the small cap categories have the potential to deliver good returns, these categories inherently are volatile with sharp drawdown risks.

“Therefore, investors should have a long-term time horizon while investing in these categories. Opting to invest in these categories via the Systematic Investment Plan (SIP) route is a good way by which investors can ride the volatility whilst dollar cost averaging over long periods,” he said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Equity MFs see 35th month of inflows in January, debt funds attract ₹76,469 crore

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Equity mutual funds in India have maintained their upward trajectory, marking the 35th consecutive month of inflows, as per data released by the Association of Mutual Funds in India (AMFI). The latest figures for January 2024 reveal a surge in inflows to ₹21,749 crore, up from ₹16,997 crore in December 2023.

In a detailed breakdown, small-cap funds witnessed an inflow of ₹3,257 crore in January, showing a marginal decline from ₹3,857 crore in December 2023.

Largecap funds witnessed inflows of around ₹1,287.05 crore as against an outflow of ₹280.94 crore in December.

Mid-cap funds, however, saw increased investor interest with an inflow of ₹2,061 crore, up from ₹1,393 crore in December.

Meanwhile, credit risk funds experienced an outflow of ₹303 crore, down from ₹368 crore in the preceding month of December 2023.

Exchange-Traded Funds (ETFs) saw a significant uptick in inflows, reaching ₹571 crore in January compared to ₹200 crore in December 2023.

This growth signals a robust investor interest in ETFs in the early months of 2024.

Liquid funds, typically considered a safer haven, recorded an inflow of ₹49,468 crore in January, rebounding from the outflow of ₹39,675 crore in the previous month.

New Fund Offers (NFOs) continued to attract investor attention, raising ₹6,817 crore in January.

Breaking down the sectoral trends further, dividend yield funds experienced an inflow of ₹382 crore in January, marking an increase from ₹279 crore in December 2023.

Equity-Linked Savings Schemes (ELSS) saw a substantial turnaround with an inflow of ₹532 crore, compared to an outflow of ₹314 crore in the preceding month.

Total debt scheme inflows reached ₹76,469 crore, demonstrating a positive shift from the outflow of ₹75,560 crore in December 2023.

Hybrid funds, combining equity and debt components, also observed a surge, attracting ₹20,637 crore in January, up from ₹15,009 crore in December.

Corporate bond funds saw an impressive inflow of ₹1,301 crore, significantly higher than the ₹188 crore inflow recorded in December.

The total assets under management (AUM) for the mutual fund industry climbed to ₹52.74 lakh crore.

Commenting on the data, Sunil Subramaniam, MD & CEO of Sundaram Mutual Fund, expressed optimism.

He emphasised the success of the industry in repositioning large-cap and larger mid-cap funds, given the significant valuation differences.

He also highlighted the strength of Systematic Investment Plans (SIPs) and the positive trend in mid-cap investments.

Anthony Heredia, MD & CEO of Mahindra Manulife Mutual Fund, noted a shift in investor preference towards large and mid-cap funds, highlighting the decline in small-cap flows.

He also discussed the significance of multi-asset funds in attracting fixed-income investments.

While NFOs attracted substantial funds, Heredia cautioned against thematic and sectoral equity NFOs, urging investors to maintain diversification across capitalisations.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Thematic funds lead Dec equity inflows, small caps follow: Where should you invest now?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Sectoral or thematic funds witnessed the highest inflows in the equity category in the month of December, according to data released by AMFI (Association of Mutual Funds in India). They recorded net inflow of ₹6,006 crore, reflecting a 205% increase compared to the previous month.

In November 2023, thematic funds saw ₹4,041-crore inflows.

Thematic funds are equity mutual funds that invest in stocks tied to a theme. For instance, an infrastructure theme fund will invest in cement, power, steel, among other sectors.

Talking about the rising inflows in the category, Melvyn Santarita, Analyst and Manager Research at Morningstar Investment Research India, said the launch of four new funds in the month, namely Axis India Manufacturing Fund, DSP Banking & Financial Services Fund, Kotak Healthcare Fund and Quant Commodities Fund supported the category.

These new fund offers (NFOs) collectively amassed $4,259 crore, significantly contributing to the category’s heightened influx.

Moreover, the small-cap category maintained its robust momentum, experiencing net inflows of ₹3,857.5 crore in December. Notably, the launch of Motilal Oswal Small Cap Fund was instrumental in garnering ₹1,226 crore during its NFO stage.

Gopal Kavalireddi, Vice President of Research at FYERS, highlighted investors’ increased allocation to this market segment, considering the underperformance of large caps over the past nine months.

Conversely, the mid-cap category observed a comparatively moderate flow of ₹1,393 crore in December.

“This revealed a noteworthy dip in comparison to the preceding four months (August to November), potentially attributed to investors opting to capitalise on profits within this category, given its recent significant surge. Despite a fair bit of redemptions in the small-cap category, the quantum of purchases outweighed the outflows considerably,” Santarita pointed out.

However, the equity landscape saw categories like large-cap (₹280.9 crore), focused (₹490.9 crore), and ELSS (₹313.5 crore) experiencing net outflows.

The investors’ preference for passive investment vehicles, such as index funds and ETFs, might be a contributing factor to the disappointing flows in the large-cap category over the past year, as per Santarita’s insights.

In the hybrid schemes category, net flows reached ₹15.009 crore, propelled by an influx of ₹10,645 crore into arbitrage funds.

This shift in allocation between equity and debt has been a consequence of Indian markets soaring to all-time highs, noted Kavalireddi, highlighting the inflows into multi-asset allocation funds and balanced advantage funds.

A look at calendar year 2023

For the calendar year 2023, equity funds amassed net inflows of ₹1.61 lakh crore, with a significant 39% portion, amounting to ₹63,949 crore, being directed towards mid- and small-cap mutual funds.

Sectoral/thematic funds emerged as the subsequent favoured category, amassing ₹30,841 crore for the year.

On the contrary, large-cap and focused funds were the only sectors experiencing negative inflows of approximately 1.7% each.

Where should you invest now?

Regarding investment strategies, Kavalireddi suggested a need for portfolio rebalancing between equity and debt, emphasising the substantial outperformance of Nifty mid-cap and Nifty small-cap by 46.6% and 55.6%, respectively, in just nine months.

“With an anticipated reversal in the interest rate cycle, investors are urged to consider this and reallocate across market capitalisations,” he said.

Kavalireddi also highlighted the likelihood of the broader market undergoing consolidation in the current year, citing extreme valuations in mid and small caps compared to the relatively underperforming large-cap stocks.

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3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow