Unit trust industry AUM slips in March

• AUM of five largest funds decline by Rs.2.1bn in March
• Most likely due to corporate investors withdrawing money for seasonal cash needs 

Assets under management (AUM) of the unit trusts industry slipped in March although the cumulative gain during the first three months of the year stood above Rs.11 billion.

According to analysts, the short-lived slippage in March may have been caused by the liquidity needs of companies ahead of the New Year season. 

AUM of the five largest mutual funds in the country shed Rs.2.1 billion in assets during March. Perhaps, companies may have realised their investments in units to add merchandise and pay various bills including salaries and others which typically require more cash before the close of the business for New Year holidays.
More than 80 percent of the industry’s AUM is owned by corporates which often park their excess liquidity for relatively higher returns. 

For instance, First Capital Money Market Fund, the fourth largest unit trust fund with AUM of Rs.21.5 billion as of March end had delivered a return of 11.98 percent, substantially higher than what a short-term investment in Treasuries or a bank deposit delivers. 

According to First Capital Asset Management Limited, the managers of the fund, the return was the highest compounded annual growth rate for the last five years as of February 2021. 

“The fund is used as a de-facto savings account yielding a higher rate compared to a one-year fixed deposit rate of a licensed finance company and over 250 basis points above a typical savings account,” said Kavin Karunamoorthy, AGM Asset Management, 

claiming that their fund was the fastest to reach Rs.20 billion in assets. 

Mirror Business recently showed that how ultra-low interest rates are drawing investors into unit trusts, seeking a relatively better deal to Treasuries and bank deposits. 

During the first two months, the top five funds added as much as Rs.13.5 billion in new assets, before the Rs.2.1 billion slip in March.

The behaviour of the top five funds provides a sufficient indication as to where the broader industry is heading. 

Meanwhile, the larger fund, NDB Wealth Money Plus Fund with AUM of Rs. 75.1 billion shed Rs.9.8 billion in assets during March, marking the biggest outflow of any fund in the month. 

However, the others, CAL Investment Grade Fund, First Capital Money Market Fund and CAL Income Fund with the exception of JB Vantage Money Market Fund, continued to add assets in March. 

With low interest rates, specially with deposit rates hovering at their all- time lows, the unit trust industry is poised for better prospects in the months to come as authorities have indicated willingness to continue on the current policy path providing the much needed predictability to businesses and investors.