Impact 
L&T Finance Holdings is all set to offload its minority stake in the Mutual Fund arm. The Fund house, which has grown majorly through acquisitions, seems to have made up its mind to cash-in the current boom in the mutual fund industry. The Assets under Management of mutual funds recently crossed Rs 14 lakh crore mark. Stable markets and the vibrant mood of investors have helped the mutual fund industry garner such a massive AUM.
The L&T Mutual Fund currently manages about Rs 26,000 crores and endeavours to value its business at about Rs 1,000 crores to Rs 1,300 crores. This is what the spoke person of L&T Finance had to say about the development, “For the MF business, we may look at a minority foreign partner, who can bring in funds into the business and add value to our growth strategy.” However, there’re rumours in the industry that, if it gets good value for its business, the fund house may not mind exiting the business altogether.
For acquiring Fidelity Mutual Fund in 2012, the fund house had shelled out about Rs 550-600 crore. At the time, Fidelity had Rs 8,881 crore under its management. Prior to that, L&T Mutual Fund had acquired assets worth Rs 2,893 crore of DBS Cholamandalam Mutual Fund for Rs 45 crore in 2009. Post acquisitions, its extensive distribution network and the sharp rally in the equity market that happened over the last couple of years, helped L&T Mutual Fund grow.
Probable reasons for initiating the stake sale are...
- Mutual fund business operates on a tiny margin. Currently, L&T Finance is in the process of improving its Return on Equity (ROE). The stake sale may help the company unlock the value of its mutual fund business for shareholders.
- Lack of awareness among people about mutual fund investing makes the company vulnerable to the pressure of redemptions during bad times. The L&T Mutual Fund has had its share of problems between 2012-2014 due to miserable market conditions and weak investor sentiment.
- Stringent regulations and uncertain prospects have discouraged many mutual fund houses from continuing their operations. The same might also be true in the case of the L&T Mutual Fund. The Securities and Exchange Board of India (SEBI) has been discouraging mutual fund houses from using the distributors’ model for growth. Building new platforms to attract investors may require more investments, which may further reduce profit margins.
As reported by Business Standard dated May 17, 2016, L&T Mutual Fund reported a net profit of Rs 19 crore for FY 2015-16. However, for the same Financial Year (FY) the consolidated net profit of the company was about Rs 850 crore. In other words, the Mutual Fund business contributes less than 3% to the net profit, making it an a small contributor. There’s a possibility that under the on-going restructuring process the company may entirely exit this auxiliary Mutual Fund business and focus on its core businesses.
What should investors do under such circumstances?
PersonalFN has been extensively covering the consolidation activities in the mutual fund industry. It is of the view that when a fund house sells its business partially or entirely investors should remain calm and carefully assess the performance of the acquirer, giving it a fair chance to prove its mettle.
What should you do in case L&T Finance sells its Mutual Fund Business; partially or wholly?
First, await the official confirmation about the deal. Often, rumours surround such arrangements and the actual acquirer remains behind the curtains until the deal is sealed. So wait for clarity and keep reading PersonalFN’s posts. As and when the deal happens, PersonalFN will present a detailed analysis to its readers providing clear guidance on what could they do with their investments in L&T Mutual Fund.
PersonalFN believes, an Asset Management Company (AMC) may not be a successful venture for those who only enter it to either grab a market share or to enhance the shareholder’s equity. The essence of the mutual fund business is to help investors in their journey to wealth creation. The profits may proliferate only when investors themselves invest aggressively, understanding all risks involved in mutual fund investing.
The industry has no alternative but to educate investors and spread financial literacy. Moreover, it is also important to ensure that investors do not lose faith in mutual funds by falling prey to the false promises of greedy, commission-driven distributors. PersonalFN remains committed to work on both fronts with equal vigour and due diligence. For investor education, we’ll continue to focus on initiatives such as moneysimplified.in, and to gather all like-minded ethical financial planners, it will keep expanding its unique platforms such as "Certified Financial Guardian."
Distributors may come and go; fund houses may keep changing hands, but PersonalFN endeavours to remain anchored deep and work relentlessly for the benefit of investors.
Impact
Traditionally, Indians buy gold on auspicious occasions and Akshaya Tritiya, Dussherah and Dhanteras are the three biggest propitious days when a large number of people buy gold.
However, there were not many takers for the precious yellow metal this Akshaya Tritiya. Broadly, jewellers have reported about 25% to 30% drop in volumes as compared to last year’s figures. It is believed that, apart from high gold prices, 42-day long jeweller’s strike has affected the sales numbers. The gold prices were almost 11% higher this Akshaya Tritiya as compared those last year on the same occasion. Jewellers have also witnessed lesser footfall this Akshaya Tritiya.
Another reason that dragged the volumes down could have been the on-going state elections, that may have affected the cash sales of gold in the southern regions.
Moreover, India’s gold imports have been merely 52 tonnes for March 2016 and April 2016 put together. The imports were about 197 tonnes last year during the same time, and stood at 219 tonnes 5 years ago in 2011.
PersonalFN is of the view that, gold should not be approached as a mere commodity, but a portfolio diversifier and safe haven during times of economic uncertainty. Always hold 10% to 15% of your portfolio in gold; and instead of speculating on the price moves, keep buying for the long-term and make use of prices dips. Sovereign Gold Bonds is the most attractive alternative to buying gold in physical form. Gold Exchange Traded Funds (ETFs) is the next best alternative.
Impact
Financial advisors play a major role in helping people achieve their financial goals. However, for an independent financial planner to acquire a new client isn’t an easy task. That is where some try taking shortcuts. Instead of acting as financial planners, they become greedy distributors of financial products. Although these are handful unscrupulous advisors, yet they earn a bad name for the entire community of financial planners and advisors. PersonalFN decided to bring about a change.
It recently launched an initiative called “Certified Financial Guardian” that endeavours to bring all like-minded planners, who believe in ethical values to grow a practice, on the same platform. To reinforce the belief of planners in ethics, the PersonalFN offers a course to those who wish to join the initiative. However, this is not all. This is the first-half of a new script that PersonalFN has authored. The other side of the story is more compelling. PersonalFN remains committed to introducing their Certified Financial Planners to its huge reader-base of over 1.4 lakh.
What does this mean for financial planners?
A financial planner, who stands firm on his/her core values but is unable to generate enough business, will suddenly receive massive exposure to people seeking advice on financial matters. Although PersonalFN will not “recommend” planners directly to its readers; it will provide a level-playing field to all planners enrolling into the Certified Financial Guardian initiative.
Many financial planners have already re-defined their career by enrolling in the CFG programme. Those who are still undecided might be considering the pros of how rewarding it would be to become CFGs. Alternatively, there might be advisors who would be skeptical about the efficiency of the platform in generating fresh leads for them.
To ready more about this story and Personal FN’s views over it, please click here.
Impact
The landscape of the mutual fund industry is constantly changing. In the last ten years, we’ve witnessed many fund houses have entered the business while some have exited too. As per the records of Association of Mutual Funds in India (AMFI), there were 29 fund houses in April 2006. Ten years later, the number has gone up to 42 in 2016. This doesn’t mean all new fund houses directly set up their offices on day one. A few entered through Joint Ventures, while others took over the existing ones. Mergers and Acquisitions (M&A) have become common these days in the mutual fund industry. Whenever a fund house takes over the assets of another, or picks up the stakes in the Asset Management Company (AMC), the name of the merged fund house or those of its schemes changes. What does it mean for you as an investor?
Mergers and Acquisitions are crucial for the investor, especially if the acquiring company has a different investment style or the approach. However, if there’s no change in the management philosophy and the fund management team, there are unlikely chances that the mergers will affect the performance of your existing investments. Looking at the recent industry trends, acquiring AMCs are usually not keen on bringing in any significant changes as they understand doing so would affect the inflows of funds. However, this does not hold true always. There have been instances in the past where the performance of schemes floated by the acquired fund houses changed dramatically after the takeovers. The reverse is equally true.
To ready more about this story and Personal FN’s views over it, please click here.
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The number of mutual fund folios continued to rise even in the first month of the Financial Year (FY) 2016-17. The industry has reported a jump of nearly 4.09 lakh folios in April of which approximately 1.6 lakh were the equity folios. In FY 2015-16, the industry had added over 59 lakh folios. Although the additional folios do not mean those many new investors invested in mutual funds as a person can hold multiple folios, it clearly hints at the growing interest. Smaller towns have contributed significantly this time, indicating that stable markets and spread of financial literacy has helped. With new additional, the total tally of folios of the mutual fund industry has reached to 4.8 crore.
PersonalFN is of the view that, rising folios is a good sign for the industry as it suggests that the investor interest is on the rise. However, it remains to be seen what’s driving the sales. If investors are entering into the market with unrealistic expectations of returns, it will backfire on the industry during bad phases; this is going by experience.
PersonalFN believes, investors should opt for the Systematic Investment Plans (SIP) route for investing in equity oriented mutual funds. Investing in mutual funds can help you achieve your long-term financial goals provided you stick to your asset allocation and periodically review your investment portfolio.
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ROE: Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.
(Source: Investopedia)
| Quote :"Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well"
- Warren Buffett
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