A Cloud-Burst of Cash in Mutual Fund Market

• It is something the people in the industry are not talking about.

• Every where in the market there is cash overflow & liquidity, even MF industry is no stranger to it now.

• Falling returns in the short term money market have forced investors to seek a better outlet in mutual fund schemes. The result is that mutual funds are now flush with funds.

• They have amassed an Assets Under Management (AUM) of Rs. 487000 Crores during & at the end of July.

• This figure is as per the figures declared by AMFI and Reliance Mutual Fund, ICICI Prudential Mutual Fund and UTI Mutual Fund continue to lead India's 32 mutual fund houses in terms of assets under management.

• This is a record in itself, though Industry is not talking or boasting about it.

• Their assets are up by a whopping Rs. 86000 Crores.

• Out of these Rs. 75000 crores came as investments in Liquid and Liquid plus funds.

• One third of these or about Rs. 25000 crores has come as investment from banks.

• Now it’s easy to imagine why the Call Rates have gone down and are almost touching zero

• Thus due to surplus the banks may have moved to mutual funds but with the stock valuations at high & with little or almost non existent investment opportunities the fund managers will again park this money with banks only!

• One Key concept in this story is AUM – Assets Under Management of Mutual Fund Houses.

• The monthly average AUM is calculated by adding the total assets under management at the close of each day of a month and then dividing it by the number of days in that particular month.

• Funds started declaring their average monthly assets under management (AUM) instead of the value of assets as on the last day of the month since August 2003.

• This has ensured that investors get a more realistic picture of the quantum of funds managed by the mutual funds.

• This has stopped the previous practices of MF’s to jack up their AUM unduly on the last day of month under the previous regime. A curb on Other such practices has also been put by this system of declaring Average Monthly AUM.

I sincerly hope this article will give you fodder to do some future research on the industry and the relevant sectors touched upon in the article.