In a sense, 2014 was a comeback year for the MF industry.
The year 2014 was an eventful year for the MF industry with several ups and few downs. The most significant milestone that lifted the spirits of the industry was the change in government.
2014 could be one of the memorable year for MF industry so far because of the market rally which had a spillover effect on all the stakeholders. While the rally was a big positive for the entire industry (Sensex crossed its all-time high of 28,822 in December), it was not quite rosy for the fund houses which called it quits.
Here’s a lowdown on the most important events which left a mark in MF industry in 2014:
- Return of equity mutual funds
Thanks to the rally, investors made in killing in equity funds with the mid and small cap funds topping the returns chart at 72% absolute return, followed by sector funds like banking and infrastructure funds at 61% and 57% respectively. The mouthwatering returns from equity funds attracted investors in hordes with the folios and net inflows gaining positive traction.
- MF industry AUM at all-time-high
2014 was better for both equity and debt funds which helped the industry’s assets under management reach an all-time high of Rs. 10.90 lakh crore in November, within kissing distance of Rs. 11 lakh crore. If the rally continues, many believe that the industry’s AUM is set to touch another high in 2015.
- Net worth hike
A move which was opposed by some small fund houses, AMCs were required to have a net worth of Rs. 50 crore which was Rs. 10 crore earlier. According to SEBI, the main objective behind raising net worth was to discourage non-serious players entering MF industry, thereby protecting the interests of retail investors. SEBI also asked AMCs to put in seed capital in open end funds to ensure that AMCs have skin in the game. This proposal was well received by a large section of the industry.
- AMC exits
While 2014 turned out to be a good year for most fund houses, some AMCs decided to call it quits. 2014 saw some of the big AMCs consolidating their position by acquiring the schemes of their smaller peers. One of the oldest foreign sector AMCs in India, Morgan Stanley sold its schemes to HDFC Mutual Fund. Also, PineBridge and ING sold their schemes to Kotak and Birla SunLife MF.
- Budget blow to debt funds
The 2014 budget ended the tax arbitrage which debt funds enjoyed over traditional fixed deposits. The increase in the definition of long term capital gains tax for debt funds to three years from one year was another dampener for debt funds. This virtually ended the one year FMPs market, with most AMCs recalibrating their strategy to focus on long term FMPs.
- Closed end funds
While the market rally helped the industry get good inflows in open end funds, AMCs saw this an opportunity to cash in on the positivity surrounding the market. The trend of closed end fund launches, which started in early 2013, gathered pace in 2014. The industry saw the launch of as many as 36 closed end funds in 2014 which collectively mopped up nearly Rs. 9,000 crore.
- Regulatory noose on upfront commissions
The slew of closed end fund launches which reportedly paid high upfront commissions attracted a lot of negative publicity. This has led to SEBI reportedly attempting to set out limits on commission payouts.
- Top exits
2014 saw a number of high profile exits from the industry. Among the most notable exits were that of Kotak MF CEO Sandesh Kirkire, Baroda Pioneer CEO Jaideep Bhattacharya, Nikhil Johri of BNP Paribas MF and Vijai Mantri of Pramerica MF.
- Investment Advisor Fee Hike
Last but not the least, the registration fee for corporates and LLPs to get Investment Advisor (IA) certificate was hiked 400% from Rs. 1 lakh to Rs. 4 lakh by SEBI. With only a handful of advisors having registered with SEBI as Investment Advisors so far, many see this as a further entry barrier for people to register with SEBI as IA.
All in all, 2014 was a memorable one for the MF industry. Let’s hope the industry maintains the momentum in the New Year.
