Mixed fortunes for top five MFs in FY09

The fall in the equity markets was to put some pressure on the balance sheets of the top five asset management companies (AMCs) in the country. But, two of them have managed to buck the trend, thanks to the rise in their average assets under management (AAUM).

While Reliance Capital, ICICI Prudential and UTI saw a drop in their profits, Birla Sun Life and HDFC's profits rose.

ICICI Prudential, the third largest fund house in the country, suffered the most. It saw its profits dipping by almost 99 per cent - by Rs 81 crore (Rs 810 million) to just Rs 1 crore (Rs 10 million) - in 2008-09. In the last financial year, it had posted profits of Rs 82 crore (Rs 82 million).

Both Reliance Capital and UTI Mutual Fund's profits fell by 16 per cent. Reliance Capital Asset Management Company, the largest mutual fund with average assets under management (AAUM) of Rs 80,963 crore (March-end), has seen its profit after tax (PAT) decline by 16 per cent, from Rs 150 crore (Rs 1.5 billion) in FY08 to Rs 126 crore (Rs 1.26 billion).

Sundeep Sikka, chief executive officer, Reliance Capital AMC, said: "The decrease in profit is due to bad market situation, as the net asset values have eroded during this period. We have high exposure to equity."

According to sources, UTI Mutual Fund's PAT has fallen from Rs 145 crore (Rs 1.45 billion) to Rs 122 crore (Rs 1.22 billion) in FY09. That is a decrease of 16 per cent compared to the last financial year. All three fund houses also showed a fall in their AAUM.

However, two fund houses showed a growth in profits. HDFC Mutual Fund, which manages Rs 57,956.44 crore (at the end of March) and is the second largest player, registered a profit before tax (PBT) of Rs 276.78 crore (Rs 2.76 billion) compared with Rs 240.33 crore (Rs 2.40 billion) in FY08. That is, a rise of Rs 36.45 crore (Rs 364.5 million). During the year, its AAUM rose by Rs 13,183 crore (Rs 131.84 billion).

Birla Sun Life AMC's, the fifth largest mutual fund, PAT was at Rs 7.9 crore (Rs 79 million) from Rs 2.8 crore (Rs 28 million) in the previous financial year. That is, a rise by Rs 5.1 crore (Rs 51 million). The fund house's AAUM rose by Rs 11,190 crore (Rs 111.90 billion) in FY09.

Anil Kumar, chief executive officer, Birla Sun Life Mutual Fund, said, "We have strengthened our distribution and reach. We also launched innovative products, which were well received by the market. These have helped us improve our cost efficiency and the resultant profitability."

Market experts said both new fund offers and existing funds did not attract any significant money. Worse still, money from systematic investment plans, which were a regular source of inflows, also dried up by 20-25 per cent during the year.

Instead, the money moved into short-term debt funds where the income is much less compared to equity funds. For instance, fund houses charge around 1-1.25 per cent in equity funds whereas they get around 0.30-0.50 per cent in short-term funds.

Further, industry watchers said that during the October crisis, when the mutual fund industry lost over Rs 90,000 crore (Rs 900 billion) in a single month due to redemption in liquid scheme, many fund houses were forced to borrow at exorbitant rates (as high as 40 per cent) to pay investors.

"Though the fund houses paid back investors, they were unable to charge the expenses to the scheme because it would have led to fall in the net asset values and more redemption pressure. So, the expenses were transferred to the AMC's balance sheet," said an industry expert.