Mutual funds as treasury managers

S Vaidya Nathan

THE fund flow statistics for October 2001 continues to show the shift towards short-term funds. Quite clearly, corporate flows are crucial in this context, and mutual funds seem to be emerging as treasury managers for parts of India Inc.

Mutual funds' net inflows in October were Rs 341 crore. Sales by mutual funds were Rs 11,279 crore, and redemptions Rs 10,938 crore. The following are the significant pointers from the fund flows in October 2001 (taken from the numbers released by the Association of Mutual Funds in India _ AMFI):

* The assets under management continued to shrink and, at end-October were Rs 94,571 crore. This is a decline from September 2001, as well as October 2000, when the assets under management were Rs 96,837 crore.

* For April-October, sales were Rs 75,325 crore (Rs 46,692 crore in the corresponding previous period) and redemptions Rs 68,399 crore (Rs 40,526 crore). The net inflows were Rs 6,926 crore (Rs 6,126 crore).

* The assets of the Unit Trust of India are set to slip below the Rs 50,000-crore mark. As of end October UTI had assets of Rs 50,026 crore.

* Private sector funds now have a share of close to 38 per cent of the industry's net assets.

* Growth schemes accounted for less than 1 per cent of sales. Close to 70 per cent of the fund continue to flow into short-term funds, such as liquid/money market/ gilt funds. The rest is largely accounted for by the regular income schemes, which have a longer-term orientation.

* Growth schemes have seen net outflows, with redemptions at twice the sales level of Rs 96 crore. This is a continuation of the trend in inflows for such schemes as investors shy away from equities. The October rally in stock prices seems to have triggered redemption by some investors.

* Short-term income schemes have also seen outflows, with redemptions at Rs 7,762 crore, while sales were Rs 7,325 crore. Almost the entire accretion to the mutual fund asset base is accounted for by regular income schemes.

* Close to 75 per cent of the assets under management are accounted for by income schemes. Equity-oriented schemes account for just 13 per cent of industry' assets.

* Private sector funds continue to attract most of the incremental flows and have a share of around 95 per cent in sales. Redemptions have also been fairly high. But these funds were the ones to have net inflows for the month as well as for the April-October period. For the fiscal year so far, net inflows to these funds has been Rs 8,485 crore.

* The UTI has had net outflows of Rs 743 crore for October. In April-October, the outflows haven been close to Rs 5,000 crore. Bulk of this is accounted for by the US-64 outflows in April and May.

US-64 prices: The repurchase price for unitholdings of up to 3000 units will be Rs 10.30 per unit in November under the Special Liquidity Package, This is a rise of 10 paise over the October levels. The package was offered from August at Rs 10 per unit and is due to end in May 2003 at Rs 12 per unit. For holdings beyond 3,000 units, a repurchase facility at NAV-linked prices will be available from January 2.

HDFC AMC: A 13.9 per cent stake in HDFC Asset Management Company is to be sold to the existing joint venture partner, Standard Life by the Housing Development Finance Corporation (HDFC). The venture was originally set up with HDFC holding 74 per cent and Standard Life the rest. The deal for the 13.9 per cent is valued at Rs 40 crore. The sale will take Standard Life's stake to 39.9 per cent, Standard Life had picked up the initial 26 per cent at Rs 5.2 crore.

Birla Bond Plus: Birla Mutual Fund has launched Birla Bond Plus. This is an open end income scheme and offers dividend and growth options. The fund will invest in debt and money market instruments., The minimum subscription amount is Rs 5000 and in multiples of Re 1 thereafter. There is no entry load but there will be an exit load of 0.25 per cent. The exit load will apply if the units are redeemed within 30 days. The fund was closed for subscription in the initial offer period on November 22 2001 and is now available on an ongoing basis for sale and repurchase.

Morgan Stanley update: There has been a notable shift in the top holdings of Morgan Stanley Growth Fund. The top ten holdings now are Hero Honda, HDFC, Infosys Technologies, State Bank of India, Container Corp, HDFC Bank, Cipla, MTNL, ITC and Gujarat Ambuja Cements. The top ten holdings have a more diversified look than at any time in the past.

The fund has cash/cash equivalents of around 9 per cent. The net assets of the fund as of September 30 was Rs 652.22 crore. The value of non-performing assets is 0.17 per cent of net assets and illiquid stocks 1.28 per cent of net assets. The fund has no exposure in derivatives and investments in ADR/GDR of Rs 26.01 crore.