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Bank mutual funds go down the drain

Aabhas Pandya

It has been a torrid year for bank-sponsored asset management companies. The six mutual funds, sponsored by public sector banks, have seen their assets under management dwindle to less than Rs 37 billion. That's a 54 per cent decline from Rs 80.39 billion under management in January this year.

In the absence of both new launches and investments in handful of open-end funds, fresh collection was virtually absent this year. The falling markets have further eroded the corpus with the redemption of Rs 14 billion BoI Double Square Plus adding to the gloom. Of the six AMCs - CanBank, SBI, BoB, BoI, IndBank and PNB, only SBI and CanBank mutual funds hit the market in 2000 with government securities funds.

No wonder, public sector banks are now reviewing the viability of their mutual fund arms and at least two banks have decided to put their asset management companies on the selling block. Recently, the Reserve Bank of India had also raised its doubts on the viability of bank-sponsored fund houses.

Among the six asset management companies, it is only SBI-sponsored SBI Funds Management, which has maintained its growth tempo and has given impressive returns in some of its funds. For instance, the AMC's IT fund has returned 75.5 per cent since its launch in July last year while the balanced fund has yielded 18.87 per cent since its launch in October 1995. The mutual fund currently manages 23 funds, including a well-spread (across categories) family of 11 open-end funds.

Apart from offering basic products like plain equity and bond funds, SBI Mutual Fund has a range of sectoral funds and is in the process of launching an open-end monthly income plan. It is not surprising therefore, that SBI Mutual Fund manages a lion's share of cumulative assets under management. Currently, the AMC has an asset base of Rs 27 billion, which is a whopping 70 per cent of the total assets under PSU-bank sponsored mutual funds.

Another likely survivor as the AMCs slip into a morass is CanBank Mutual Fund. With assets under management of Rs 7.52 billion, the AMC has eight open-end funds. However, this alone cannot ensure fresh inflows. The AMC's open-end funds have been poor performers with paltry returns since launch. That apart, the AMC does not have a basic bond fund or a range of sectoral fund. While the AMC has a critical mass, the fund managers need to generate better returns. Else, the open-end funds could also suffer redemption.

On the other hand, it is virtually a dead-end for other mutual funds. After redemption of BoI Double Square, the size of the AMC has shrunk to only Rs 330 million, thus making it a financially unviable entity. The same is the case with IndBank and BoB Mutual funds, which manage less than Rs 1 billion, most of which is in close-end funds.

Asset management company	Assets under management (Rs crore)
BoB Mutual	43.89
BoI Mutual	32.94
CanBank Mutual	751.94
IndBank Mutual	85.82
PNB Mutual	176.41
SBI Mutual	2742.36

Source: Value Research

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