Mutual Fund Companies in India – Front Running Underperformers? Also Mutual Fund Industry Marketshare

Mutual Fund Companies have seen a steady growth driven by the growing financial assets being generated by the fast growing Indian economy.But the Mutual Fund Industry like other sectors such as Real Estate and Telecom too has come under the spotlight for some illegal activity.While you can’t call the industry corrupt because of some fraudulent activities it does raise questions on the industry ethics.Top Mutual Funds in the country like HDFC and L&T have been fined by the stock market regulator SEBI for front running.For those who don’t understand what the term means,front running is an illegal activity whereby a fund manager or fund official makes personal gains by making trades on his account before doing a trade for the fund.This causes losses for the fund investor and is akin to stealing.However like other corrupt practices in the stock market industry,SEBI lets them go with small fines which don’t deter more such frauds.It is also not unknown that some fund managers connive with company promoters and market operators to rig and do  circular trading.Not only is this a problem,another massive problem with the industry is its underperformance as compared to the benchmarks.While earlier mutual funds were known to outperform the benchmarks like the Nifty,a recent Crisil study has dispelled this myth.Given these disadvantages of mutual fund ,it is time to invest in Indian ETFs though not a lot of variety exists in the Indian stock market yet.

Read more about why investing in Indian markets is a hazardous venture

SEBI bans HDFC MF AVP Nilesh Kapadia for Front-Running

In a detailed investigation, SEBI found Nilesh Kapadia, AVP-Equities at HDFC Mutual Fund guilty of front-running trades that the fund was going to take:

This includes detailed call transcripts and about 38 transactions amounting to a profit of 2 crore, in 2007. And the investigation was conducted after a report from the NSE. Nilesh has been the dealer for HDFC AMC since 2000. We have no idea how much front-running has already happened!

SEBI has asked HDFC AMC to make an internal inquiry, to deposit the 2.38 crores into an account till investigations are complete, and overhaul internal control systems immediately.

SEBI also baned Sanghvi and Chandrakant Mehta, two participants in the front running, from trading.

But would these help at all? Obviously this happens at the highest of levels. In the mutual fund industry, in equities,front running is a norm, and an unmentioned “perk”. If a) you are doing trades you are not required to reveal to the public immediately and b) you are trading with other people’s money, how can you stop front running? It’s impossible.

List of some of the Major Mutual Fund Companies in India are:

1. HDFC Mutual Fund – was incorporated in 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI. In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 25.169 crore. The shareholding pattern is Housing Development Finance Corporation Limited 59.98%, Standard Life Investments Limited 39.99% & Other Shareholders 0.03%. The AMC also provides portfolio management / advisory services and activities are not in conflict with those of the Mutual Fund.
2. Reliance Mutual Fund – It is one of India’s leading and amongst most valuable financial services companies in the private sector. Reliance Capital Asset Management Limited, a wholly owned subsidiary of Reliance Capital Limited, acts as the AMC to the Reliance Mutual fund. Reliance Capital has interests in asset management and mutual funds; life and general insurance; commercial finance; stock broking; investment banking; wealth management services; distribution of financial products; exchanges; private equity; asset reconstruction; proprietary investments and other activities in financial services. Reliance Capital has a net worth of Rs. 7,810 crore and total assets of Rs. 31,994 crore as on March 31, 2011.
3. ICICI Prudential Mutual Fund – is privately owned. It is a joint venture between ICICI Bank & Prudential Plc, one of the United Kingdom’s largest players in the financial services sectors. It manages separate client-focused equity, fixed income, and balanced mutual funds. The company has over 15 years of experience and are currently managing a comprehensive range of schemes of more than 46 Mutual funds and a wide range of PMS Products for its investors, spread across the country.
4. UTI Mutual Fund – the company is incorporated under The Companies Act, 1956. It came into existence in 2002. The paid up capital of UTIAMC has been subscribed by four sponsors: State Bank of India, Life Insurance Corporation of India, Bank of Baroda and Punjab National Bank. Apart from managing the schemes of UTI Mutual Fund, the organisation! B@ also manages the schemes transferred/migrated from the erstwhile Unit Trust of India.
5. Birla Sun Life Mutual Fund – The Fund offers an array of savings and investment products for its individual, corporate and institutional investors and also manages two offshore funds. The fund house had an average assets of over Rs.65,000 crore including offshore funds (as on 31 March 2010). It is ranked amongst the top five asset management companies in the country.
6. DSP BlackRock Mutual Fund – was set up as a Trust and the sponsors are DSP ADIKO Holdings Pvt. Ltd. & DSP HMK Holdings Pvt. Ltd. (collectively) and BlackRock Inc. DSP BlackRock Investment Managers Pvt. Ltd. is the investment manager to DSP BlackRock Mutual Fund.It invests in variety of equity related, fixed income & hybrid schemes.
7. Franklin Templeton Mutual Fund – Franklin Templeton which is one of the biggest Global Asset Managers has a major presence in India as well.It is one of the oldest players in the India.
8. Kotak Mahindra Mutual Fund. – Kotak Mahindra Bank Limited is the sponsorer of the Fund. The investment manager is Kotak Mahindra Asset Management Co. Ltd.,which is a wholly owned subsidiary of the bank. The Fund that started in December, 1998 with one scheme, has today progressed to offering a complete bouquet of products and services suiting the varying needs and risk-return profiles of its investors.
9. IDFC Mutual Fund – IDFC is a leading private sector diversified financial institution established with the support and sponsorship of the Government of India. A majority of IDFC’s shareholding is held by the Government of India, International Finance Corporation, Government of Singapore, AIG, Morgan Stanley, Goldman Sachs, Citigroup, JP Morgan among others. The asset management business manages third party funds. It comprises of Private equity investments through IDFC Private Equity Company Limited, Project level equity investments through IDFC Project Equity Company Limited & Public markets investment advisory services through IDFC Investment Advisors Limited.
10. Deutsche Mutual Fund – it has the expertise of one of the larger banks in the world – the Deutsche Bank, which was established about 50 years ago in Germany. It has networks in over 16 countries, which provides an excellent mix of global investment knowledge & local presence. This differentiates it from it’s competitors.
11. Religare Mutual Fund – Religare Enterprises Limited is a leading emerging markets financial services group in India. It offers variety of services including broking, insurance, asset management, lending solutions, investment banking and wealth management. With a network of more than 2,200 business centres across 550 plus locations, over 7,000 employees and more than a million clients, REL enjoys a dominant presence in the Indian Market.
12. SBI Mutual Fund – is one of the leading fund houses in the country. SBI Funds Management Pvt. Ltd. is a joint venture between ‘The State Bank of India’ and Société Générale Asset Management (France), one of the world’s leading fund management companies. SBI Funds management manages over Rs 38,782 crores of assets and has a diverse profile of investors making their investments. In 20 years of operation, the fund has launched 38 schemes with consistent returns.
13. Sundaram BNP Paribas Mutual Fund – It is a privately owned. The AMC is a joint venture between Sundaram Finance and French bank BNP Paribas. It invests in the public equity and fixed income markets of India. The firm employs fundamental and quantitative analysis stock picking & in-house and external research to make its investments. The average assets under management was Rs. 12,827 crores as on March 31,2008.
14. TATA Mutual Fund – It has a client base of over 1 million people. The company manages funds across the entire risk-return basis. These include equity funds, balanced funds and debt funds.

Besides the above Kotak has managed to carve a distinct niche despite not having any huge backers.

MARKET SHARE in the Mutual Fund Industry in India

The Mutual Funds have a vast number of schemes  that it becomes difficult for a customer to choose his investment scheme that is offered by these various Fund houses. HDFC Mutual Fund House is the largest fund house with a Market share of around 13%. Following it is closely Reliance Mutual Fund with approximately 13% as the Market share. ICICI Prudential Fund house is the third largest with around 10% market share. Birla Sun Life & UTI Mutual Fund have their Market share around 9%. Next in line is SBI Mutual Fund which has a Market share of about 6%. Franklin Templeton, Kotak Mahindra & DSP Blackrock Mutual Funds are the next, having a Market share of around 4% each.

Given below is the Average Assets under Management for the quarter of July – September 2011 (Rs in Lakhs) (Excluding Fund of Funds – Domestic but including Fund of Funds – Overseas) – Source : AMFI

1 AIG Global Investment Group Mutual Fund 72,261.76
2 Axis Mutual Fund 754,478.45
3 Baroda Pioneer Mutual Fund 339,858.69
4 Bharti AXA Mutual Fund 17,613.38
5 B irla Sun Life Mutual Fund 6,421,703.15
6 BNP Paribas Mutual Fund 524,323.56
7 Canara Robeco Mutual Fund 692,014.56
8 Daiwa Mutual Fund 78,908.30
9 Deutsche Mutual Fund 1,276,082.58
10 DSP BlackRock Mutual Fund 3,008,371.45
11 Edelweiss Mutual Fund 44,717.07
12 Escorts Mutual Fund. 20,573.31
13 Fidelity Mutual Fund. 911,951.33
14 Franklin Templeton Mutual Fund 3,441,037.27
15 Goldman Sachs Mutual Fund 435,758.53
16 HDFC Mutual Fund 9,182,711.19
17 HSBC Mutual Fund 495,213.26
18 ICICI Prudential Mutual Fund 7,521,710.50
19 I DBI Mutual Fund 492,581.02
20 IDFC Mutual Fund 2,890,821.24
21 IIFL Mutual Fund N/A
22 Indiabulls Mutual Fund N/A
23 ING Mutual Fund 103,605.28
24 JM Financial Mutual Fund. 646,827.17
25  JPMorgan Mutual Fund 474,769.91
26  Kotak Mahindra Mutual Fund 3,210,078.50
27  L&T Mutual Fund 413,549.35
28 LIC NOMURA Mutual Fund 707,533.41
29Mirae Asset Mutual Fund 44,662.09
30 Morgan Stanley Mutual Fund 197,142.05
31 Motilal Oswal Mutual Fund 27,767.72
32 Peerless Mutual Fund 560,838.04
33 Pramerica Mutual Fund 150,488.80
34PRINCIPAL Mutual Fund 453,561.97
35 Quantum Mutual Fund 15,669.30
36 Reliance Mutual Fund 9,066,060.39
37 Religare Mutual Fund 1,104,213.93
38 Sahara Mutual Fund. 45,583.04
39 SBI Mutual Fund 4,773,139.40
40 Sundaram Mutual Fund 1,510,957.25
41 Tata Mutual Fund 2,263,377.94
42 Taurus Mutual Fund 536,733.62
43 Union KBC Mutual Fund 86,937.37
44 UTI Mutual Fund 6,257,986.12