All mutual fund categories display appreciation in November: CRISIL

All CRISIL mutual fund indices ended November 2007 on a positive note. CRISIL Fund~eX (the index for equity funds) posted 1.20 per cent gains, whereas the S&P CNX Nifty ended 2.34 per cent negative.

This is because the mid-caps and small-caps in mutual fund portfolios showed a
strong performance in the month. CRISIL Fund~bX (the index for balanced funds) returned 0.51 per cent, and CRISIL MIPEX (the index for monthly income plans) closed slightly in positive territory.

Among debt indices, CRISIL~LX (the index for liquid funds) gained the most at 0.65 per cent due to higher overnight money market yields, followed by CRISIL Fund~dX (the long-term bond funds index), which was up by 0.60 per cent, CRISIL MF~Gilt (the gilt funds index) up 0.46 per cent, and CRISIL STBEX (the index for short-term bond funds), which gained 0.35 per cent.

The mutual fund industry's assets under management (AuM), however, fell to Rs.5.42 trillion in November, against an all-time high of Rs.5.60 trillion recorded in October 2007.

Twenty-two of the total 32 fund houses registered a decrease in their AuM. According to Krishnan Sitaraman, head, fund services & fixed income research, CRISIL, “The decline in AuM can be attributed to a combination of a tightening of liquidity for banks and corporate investors, equity market volatility, flat growth of fixed maturity plans, outflow on account of IPOs, and the festive season during the month where individual investors typically end up withdrawing money.“ Redemption by banks was in the wake of call rates hardening to over 7.50 per cent by the middle of November.

Reliance Mutual Fund continued to be the largest fund house, with an AUM of Rs.778 billion, followed by ICICI Prudential Mutual fund with an AUM of Rs.550 billion, while UTI Mutual Fund was at the third place with an AUM of Rs.522 billion. In November, mutual funds were net buyers in the secondary equity market to the extent of Rs.22 billion.

Regulatory environment
On the regulatory front, the Securities and Exchange Board of India (SEBI) has announced a
potential reduction in total expenses (including investment and advisory fees) charged by index and exchange traded funds to 1.5 per cent of weekly average net assets, against the existing 2.25 per cent. Also, investment and advisory fees on a standalone basis should not exceed 0.75 per cent of weekly average net assets, the regulator said. SEBI will also be allowing domestic fund houses to short sell securities as well as to avail stock lending and borrowing facilities.

The new regulations will come into effect after SEBI announces a detailed framework for the same. Mutual funds are expected to be prohibited from naked short sales but can, however, borrow and deliver securities it has short sold. All stocks currently available in F&O trading are expected to become eligible for proposed short selling of stocks in the first phase.