New funds see huge dip in assets

MUMBAI: Is the new fund offering (NFO) mop-up story coming to an end? If the erosion in their assets under management (AUMs) is any indication, the party is well over.

The trend starts right from the mother of them all -Reliance Equity Fund. The scheme, which raised Rs 5,820 crore, the highest amount to be collected through an NFO in India, has seen a 35% dip since launch in February 2006. More than Rs 2,020 crore have been redeemed from the scheme since then.

UTI Leadership Fund, launched in January 2006, has seen its initial corpus of Rs 2,074 crore going down by a neat half.

The biggest erosion in AUM, in percentage terms, was seen in ING Vysya’s Dividend Yield Fund — a 96% decline since inception.

ABN Amro’s Dividend Yield Fund lost 90% of the Rs 430 crore it raised from the NFO. Principal Junior Cap, ING Vysya Mid Cap, ING Vysya A.T.M., Kotak Contra, Standard Chartered Classic Equity, Kotak Lifestyle and three schemes from SBI — all have the same story to narrate.

Sahara Wealth Plus has seen nearly 78% erosion in two plans.

Interestingly, most of the funds that feature in the losers’ list are from reputed MF houses, says Nipun Mehta, co-founder and CEO of Unitus Tower, which released the report on the performance of NFOs.

The reasons? Starting from simple profit-booking to investment and eventual withdrawal by sister concerns, there are a host of them.

Sandesh Kirkire, CEO, Kotak MF, attributes it to people investing in NFOs and booking profits later.

“Investors have a tendency to think that a net asset value (NAV) of Rs 10 is cheaper than an NAV of Rs 50. As a result, net sales of existing schemes are very low,” he added.

Lower returns than expected were the reason for mass redemptions for at least 10 schemes. Reliance Equity Scheme has given 18% returns since inception, while Sundaram BNP Paribas Rural India Fund has given 15.03% returns.

For ABN Amro Dividend Yield Fund, returns of just 5% seem to be the sole reason for the 96% erosion in its AUM. In fact, says Mehta, dividend yield funds, as a category, have not fared well.

Withdrawal of hot money pumped in by sister concerns during the NFO period is another reason. “Fund houses want to show big numbers on their NFO and hence get funds from sister concerns,” an analyst said.

For certain other schemes, small corpus turned out to be the party-pooper. Mehta cites DBS Chola Global Advantage Fund as an example. Its corpus fell to Rs 16 crore from the Rs 82 crore it collected during the NFO.

However, Swaminathan, national head of mutual funds at IDBI Capital Market Services, does not see any cause for concern.

The high amount of redemptions from NFOs is not a threat for the MF industry as a whole, he says. “The MF assets in the country have been growing. There would be a churn as investors book profits.”

If that’s not soothing enough, here’s one big silver lining for the industry.

Despite the huge redemptions, the recent returns from these schemes, barring DBS Chola Global Advantage Fund, have not been hit.

While DBS Chola Global Advantage Fund has been seeing negative returns over the last six months, the other schemes have posted good returns over the 2-month and 3-month periods, with some registering up to 68% returns.

The average 3-month return has been 60.77%, which is significantly higher that the 15.92% category average of equity diversified schemes.

The reason for this, Kirkire says, is that the fund manager has to ensure liquidity of a scheme, so that the returns do not get hit. Also, “As long as one makes sure money is in a liquid asset the returns would not be hit,” Kirkire said.