After two consecutive years of sensational decline, the mutual fund industry managed to register a smart turnover in 2012, with its assets base seen nearing Rs 8 trillion with an increase of about Rs two trillion this year.
As some wide-ranging reforms initiated by the market regulator Sebi and the government are yet to translate into true business gains for the investors and fund houses, the industry is hopeful of even better days ahead in 2013.
The total assets under management (AUM) of all the fund houses put together has soared by an impressive 30 per cent on strong inflows in categories such as fixed income, gold schemes and liquid funds, the industry estimates show.
The total industry AUM stood at Rs 6.11 lakh crore at the end of 2011, while the same was about Rs 6.26 lakh crore at 2010-end and Rs 6.65 lakh crore in 2009.
The mutual funds collect money from investors and later invest the same into various market segments including stocks, IPOs (primary market) and bonds.
Industry expects net inflow into mutual funds to further pick-up in 2013 as the government and Sebi have expressed their intention to revive equity culture in the country and help channelise the household income into stocks, mutual funds and insurance sectors, rather than in idle assets like gold.
"The current market conditions and wide-ranging reforms announced by Sebi to re-energise the mutual funds industry would help the sector to channelise funds in the equity market," Sudip Bandhopadhyay MD and CEO at Destimoney Securities said.
He also said that stock market and mutual funds stand to attract more investments from Rajiv Gandhi Equity Savings Scheme, after some initial hiccups.
"We have seen the AUMs increase largely in fixed income and gold schemes," Quantum AMC CEO Jimmy A Patel said.
Birla Sun Life Asset Management Company CEO A Balasubramanian said: "In 2012, the mutual fund witnessed growth in fixed income schemes. Within fixed income schemes, actively managed duration focused funds got inflows.
"In other words, debt funds attracted inflows due to stable to benign interest rate regime. Overnight rates more or less remained above the Repo rate. As a result of this, most of the fixed income schemes including money market mutual fund schemes generated higher returns than Bank fixed deposit return," he added.
Inflows in income and liquid funds have contributed the most to the industry's rising AUM. With inflows of Rs 89,302 crore, money market funds AUM surged to Rs 1.77 lakh crore. A similar trend was seen in liquid funds, where inflows rose to Rs 80,880 crore taking the assets managed by the fund to Rs 3.87 lakh crore.
Similarly, equity funds' AUM rose to Rs 1.65 lakh crore despite registering outflows of more than Rs 9,300 crore. AUM of equity linked savings scheme too increased to Rs 25,027 crore though it saw investors pull out over Rs 1,400 crore this year. Interestingly, equity fund managers of mutual fund industry has betted big on banking space with investments worth more than Rs 42,000 investment, which was 20.59 per cent of the industry's total equity assets under management.
Diversified large cap focused equity funds did well during the year, but few sectors such as private sector banks, MNC companies in the space of FMCG and select pharma have delivered substantially higher than even the index.
Gilt funds saw a rise in assets to Rs 5,426 crore due to inflows of Rs 1,567 crore this year as investors interest in the category has risen in recent months.
Incidentally, Gold ETF assets neared the Rs 12,000 crore mark as the category has seen inflows of Rs 954 crore. The rise in assets was due to inflows and mark to market gains in the underlying commodity.
"Gold AUMs have increased due to a combination of increase in the price of gold as well as continued inflows into Gold ETFs and Gold Fund of Fund Schemes.
"India has always been natural buyer of gold and with the advent of ETF's, more investors are looking at investing in this option (ETF's). Physical gold still retains its charm in India for ornamental purposes," Patel said.
In order to boost the mutual fund industry, Sebi has announced a slew of measures including expanding its distribution network and making investment more simpler and safer, among other steps.
The regulator has made it compulsory for fund houses to make more disclosures in the interest of investors. They are also required to shift to the one plan per scheme model, moving away from the present practice of cluttering one scheme with numerous plans.
At the same time, Sebi decided that any service tax would be charged to the ultimate investor, not to the asset management company (AMC), as is the practice at present.
Although, fund houses would be able to charge their investors a little bit more as incentive for expanding to small cities, but they would also have to set aside a small portion of their assets for investor education and awareness.
Speaking about the next year, Balasubramanian said, "On the basis of change in fundamentals, opportunities would arise from sectors in telecom, power and Industrials as we move into the year 2013."