It seems that the mutual fund industry is finally tired of the monthly declaration of assets under management (AUM). All I can say is that it is about time this monthly ritual is put to an end. I am normally in favour of all kinds of data being released into public domain, but in this case I am whole-heartedly in favour of non-release of average monthly AUM data.
If this monthly ritual were just useless, it could still be ignored but the monthly AUMdata is actually misleading and hence harmful. The reason for this is not the data itself, but the way it is interpreted and analysed in media.
The headline number that always carries the news is the total AUM of the industry. Every month, there are headlines like 'Mutual fund industry expands by X crore or shrinks by X crore. In the months when there is a big shrinkage, there is a general sense of impending doom in the analysis. In other months, there is a great sense of optimism. Both are wrong. The reason is that a large portion of the mutual fund industry's assets is accounted by institutions, who park their surplus cash for short periods, often as short as a few days, in debt funds. This combination of large size, and large & frequent investments and redemptions means that the impact of institutional transactions overshadows the trends in retail segment.
In August, which is the latest month for which data is currently available, the fund industry grew by 6 per cent to Rs 7.09 lakh crore from the previous month's Rs 6.68 lakh crore. However, this figure masks the real story -- a net outflow of about Rs 2,900 crore from equity funds in which most of the retail money goes.
Debt flows are affected by all sorts of factors. In July, debt funds witnessed a massive outflow of Rs 1.27 lakh crore. Apparently, the reason was the 3G licence payments made by telcos. Months in which taxes are paid see similar outflows.
What is generally perceived as the mutual fund industry is really two separate industries: a retail-oriented equity investment management industry and a very different, wholesale corporate deposit service. Aggregating the two and then obsessing with those aggregate numbers results in analyses that are not justmeaningless, but actually misleading.
This article was originally published on October 05, 2010.
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