5 top mutual fund houses

In 1994, the entire MF industry in the country managed assets of about Rs25,000 crore, with almost all of it in closed-end funds. Compare this with the volumes today: with around 3,500 funds (and over 10,000 plans), hacking through the thicket of near-identical funds is a daunting task. We profile the top 5 fund houses, their strategies and key drivers

Leveraging the brand

BIRLA SUN LIFE MF

BIRLA SUN LIFE MF (Graphics)

Despite having been around for about a decade, the variables in its favour—brand name, product range, performance and partnership with Sun Life—were not reflected in its scale of business. Hopefully, that is changing as this asset management company is now one of the fastest growing players.

Though it boasts of a distribution network of 120 branches across India, with 2.4 million customers, equity assets (which predominantly come from the retail base) still form a very small portion of overall assets. The retail component in the fixed-income basket is around 40%. Now the fund is working on increasing penetration across the country and brand-building.

Over the past 12 months, it has done well on the equity side. Exactly a year ago, of the 14 Birla Sun Life MF funds which boasted of five-star and four-star ratings, just one was an equity offering—Birla Sun Life Equity. This time, their list has five equity funds and two hybrids (a monthly income plan and an equity-oriented balanced fund).

Since: December 1994

TOTAL ASSETS: Rs63,075 cr

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Star performer

HDFC MF (Graphics)

One of the fund industry’s sturdiest shops, HDFC Mutual Fund has historically been a consistent outperformer. In fact, in 2008 all its four schemes—HDFC Equity, HDFC Growth, HDFC 200 and HDFC Taxsaver—fell much less than the category average.

This year, they have once again proved their merit.

This asset management company has witnessed some phenomenal growth in the past year. Its market share has actually gone up from 9.9% (August 2008) to 12.53% (August 2009). In the second half of 2008, HDFC Mutual Fund overtook ICICI Prudential Mutual Fund as the second largest fund house in the country in terms of assets under management.

When one looks at the composition of assets, it’s worth noting that the growth has come from money going into the liquid and liquid-plus segment. In September 2008, the fund house had 28% of its assets in equity and 39% in cash. A year later, the equity component has dropped to 21% while cash has zoomed to 70.32%.

Since: June 2000

TOTAL ASSETS : Rs90,427 cr

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Prolific player

ICICI PRUDENTIAL (Graphics)

Over the past decade, it has not limited itself to fixed maturity plans (FMPs). Though it does have a fairly good spread on the equity side, the fund house is known for its huge fixed-income business. The ICICI Prudential Flexible Income Plan, for instance, has assets of Rs32,858 crore and ICICI Prudential Liquid Fund had Rs20,825 crore of assets under management (as of September). Its gilt offerings are excellent. In the medium-term debt category, its best funds are ICICI Prudential Income Plan and ICICI Prudential Long Term Regular, though the latter hit a rough patch last year and underperformed the category average.

Its liquid funds now have almost 30% of the assets in instruments with very high liquidity.

ICICI Prudential Infrastructure and ICICI Prudential Dynamic are its best offerings. ICICI Prudential Tax Plan was a category underperformer over the past few years but has been doing very well recently. Ditto for ICICI Prudential Discovery, whose performance has impressed this year.

Since: August 1993

TOTAL ASSETS: Rs80,149 cr

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High roller

RELIANCE MUTUAL FUND (Graphics)

This fund has a history of sporting huge corpuses. In fact, the firm’s culture places a premium on running a big fund. Thanks to very aggressive distribution, marketing and brand management, it has managed to rope in the money. In all fairness, though, credit also needs to be given to performance and the wide asset mix.

Its first two equity funds, Reliance Vision and Reliance Growth, put it in the limelight in 2002 and 2003. Their performance was smartly leveraged, along with the Reliance brand, to gain investor attention. It worked and Reliance Mutual Fund became India’s largest private sector MF in 2006 and the largest fund the next year. The fund went on to create history by mopping up Rs2,700 crore for the new fund offering (NFO) of Reliance Equity Advantage NFO (2007) and Rs5,660 crore for Reliance Natural Resources Retail NFO (2008).

While some schemes may perform better than others, the fund has never really had a disaster with any of its offerings. A bone of contention has always been the huge size of the corpus.

Since: June 1995

TOTAL ASSETS: Rs118,251 cr

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Comeback kid

UNIT TRUST OF INDIA MF (Graphics)

In 2003, Unit Trust of India was split into two—UTI Mutual Fund and Special Undertaking of UTI, which housed all the assured return schemes. After the bifurcation, UTI MF was left with less than Rs14,500 crore of assets under management, but was still the largest fund in the country. Now it is down to the fourth position. Interestingly, this slippage in order is not due to the shrinking of UTI’s asset base, which has been robust. It’s simply that its growth has been slower than that of its peers.

Its best performing equity funds are UTI Infrastructure, UTI Opportunities and UTI Dividend Yield. The Transportation and Logistics Fund, which was the earlier auto sector fund, has been delivering fabulously this year. On the fixed income side, its best performers are UTI Money Market Mutual Fund and UTI Floating Rate ST Regular, and its debt-oriented hybrid fund.

UTI Mutual Fund has the largest investor base, a massive distribution network and is one of the most profitable fund companies in the country.

Since: February 1964

TOTAL ASSETS : Rs73,589 cr

The MF industry seems to be on a recovery path after the losses in September. The industry registered an increase in assets as the money coming into funds increased substantially. Investors added to its coffers by as much as Rs1,41,291 crore, resulting in a percentage change, over September, of 22.50%. However, there is a flip side to this. Open-end income schemes and gold exchange-traded funds (ETFs) were the only two categories that registered inflows, while all other categories registered outflows. Open-end income schemes, which registered inflows of Rs1,49,957 crore, thus went up by 52.35%.

A comeback for Arbitrage funds

Arbitrage funds may just have made a comeback. At least that is the signal Kotak Asset Management Co. Ltd is sending by reopening the door to fresh investment in its arbitrage fund. The trend may well be set for their return as these funds thrive in a volatile stock market environment—the higher the volatility, the higher the chance of mis-pricing of stocks in the spot and derivatives markets. This works especially in a bull market. Arbitrage funds stop fresh inflows if they see opportunities dwindling or if the fund size becomes too large, which prevents the fund manager from optimizing returns.

Fidelity India Value Fund from Fidelity MF

Fidelity MF has launched Fidelity India Value Fund, an open-end diversified equity fund. It will invest in Indian and international equities, with special emphasis on undervalued securities. It has been benchmarked to the BSE 200. The fund allocation will be 80-100% of net assets in equity, and up to 20% in cash, debt and domestic exchange-traded funds (ETFs). The fund may invest up to 10% in foreign securities, including overseas ETFs. The exit load applicable will be 1% if redeemed within one year, while the minimum amount for lumpsum investments is Rs5,000. The new fund offer (NFO) is open till 15 December.

ICICI Prudential to launch ICICI Prudential Oil Fund

ICICI Prudential MF has filed an offer document with Securities and Exchange Board of India (Sebi) to launch ICICI Prudential Oil Fund. It will be an open-end debt fund that will invest in oil-linked debentures created by investment banks, where these debentures will provide coupons (returns) linked to oil prices. It would be the first oil fund available to domestic investors. The aim of the fund manager would be to invest 80% of the total assets in oil-price-linked foreign debt securities. The fund can hold 20% of the debentures till maturity.