LIC Mutual Fund has been suffering rapid erosion in its AUM, finds Khozema Dhanerawala & Ravi Samalad.
LIC MF AUM tumbled a whopping Rs. 31,774 crore or 62% since December 2009, according to our analysis. The fall was largely due to a drop in debt AUM which fell by almost Rs. 30,999 crore or 65%. Its equity corpus too lost 14% since December 2009. LIC has not launched a single equity scheme since the launch of LICMF Infrastructure Fund in March, 2008.
The entire MF industry’s AUM had risen in September partly due to the stock market up swing rally leaving LIC MF the only exception. It witnessed a drop in its folios to the tune of 43,735 since December 2009. LIC MF has also lost its market share from 6.48% to around 2.77%
LIC MF is facing problem of retaining money in few schemes such has Liquid Fund, Income Plus Fund, Saving Plus Fund and Floating Rate Fund which have fallen 41%, 80%, 73% and 77% respectively and overall debt AUM has plunged by 65% from December 2009. This fall was seen just after the SEBI circular on liquid funds, asking AMCs to mark-to-market debt schemes with maturity greater than 90 days which dented its profit to the tune of Rs. 120 crore. "Its loss was incurred due to a sudden change in regulatory norms and not due to any internal issues," said a statement released by LIC.
An industry official attributes the fall in liquid scheme assets due to its practice of buying low rated paper which boosted its returns which gave it an edge over other fund houses initially. “LIC was in a position to support them in case anything happened. There have been instances where LIC has been observed buying low rated papers,” says the official.
Mint newspaper reported on November 16, 2010 the hit of Rs. 120 crore LIC Mutual Fund had to take on its liquid and money market schemes. The newspaper also reported that LIC is running a valuation deficit of around Rs. 14,000 crore in three plans of its guaranteed-return annuity policies—Jeevan Dhara, Jeevan Suraksha and Jeevan Akshay.
LIC MF did not respond to our query on its drastic fall in AUM.
Japanese company Nomura picked up 35% stake in LIC MF in a deal valued at Rs. 800 crore in July this year.
