We are pleased to present the India Fund Observer 2012, a year-end report that encapsulates the key trends in the financial and mutual fund markets during the year. It is our endeavour to update the investor with insights on the key events that transpired in 2012, and how they impacted the markets. The report also incorporates insights from prominent fund managers, along-with comprehensive data on the mutual fund industry and top-rated funds from Morningstar.
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Highlights for the fund industry in 2012:
- Surge in equity markets and huge net inflows in debt-oriented categories helped mutual fund industry to register a sharp growth in its asset base in 2012, after witnessing a fall in the preceding two years. On a year-end basis, the assets of the industry swelled by 24.3% as against a fall of 2.4% in 2011.
- After witnessing net inflows of over Rs 6,800 crores in 2011, equity funds recorded net outflows of Rs 14,148 crores in 2012 mainly on account of profit booking by investors who took advantage of market revival. Furthermore, collections from equity new fund offers (NFOs) continued to plunge, and so did the number of new launches. A total of seven equity funds were launched this year which together mobilized around Rs 477 crores. Last year, 10 new equity funds were launched which mobilised around Rs 612 crores.
- The cumulative assets of all funds belonging to the Morningstar Intermediate Bond category grew from just Rs. 6,274 crores at the end of 2011 to Rs. 38,442 crores at the end of November 2012—a stellar growth of more than 500%. Within the Morningstar Intermediate Bond category, dynamic bond funds especially registered huge inflows and saw their assets rising sharply during the year.
- With the interest rate environment changing in 2012, the mobilization and launches of Fixed Maturity Plans (FMPs) slowed down, especially post the month of March 2012. For the full year 2012, more than 500 FMPs were launched, which cumulatively collected around Rs. 80,000 crores. This was sharply lower from the previous year when the FMPs witnessed record collections of Rs. 118,000 crores from about 700 launches.
- Asset growth of gold ETFs tempered down in 2012, when compared to the previous year. Gold ETFs registered a 31% growth in assets in 2012, compared to hefty 160% growth registered in 2011. Inflows into gold ETFs also moderated down in 2012. They did manage to post decent returns of around 11% during the year 2012, though it turned out to be lower than a heady return of about 31% in 2011.
- Despite decent returns in 2012, the assets of Monthly Income Plans (MIPs) continued to shrink. The category returns picked up sharply to an average 13% in 2012, compared to a subdued return of 1.56% in 2011. However, its assets shrank by 25% in 2012 (upto November).
- Despite the changing interest rate environment short-term bond funds registered good inflows in 2012. The cumulative assets of funds belonging to the Morningstar Short-Term Bond category rose from Rs. 30,315 crores at the end of 2011 to Rs. 77,577 crores at the end of November 2012—a robust growth of almost 160%.
- Equity fund managers hiked exposure to financial sector quite aggressively in 2012, and also increased allocation to mid-cap stocks. Bond fund managers increased the average maturities of bond funds considerably, on expectations of further rate cuts.
- Financial sector funds were the clear winners in 2012, helped by easing of interest rates. Small/mid-cap equity funds beat their large-cap cousins by a good margin. On the fixed-income side, longer duration gilt and bond funds fared better.
- Equity funds fared well in 2012, but a number of them underperformed their respective indices. A look at longer periods (3 & 5 years) paints a more positive picture, with the larger funds mostly outperforming the benchmark indices.
- Profits off large fund companies was a mixed bag but largely improved in FY12. Small fund houses continue to remain mired in losses, but the magnitude of losses reduced.