The lesser known side of India’s fund industry is the large and growing institutional business vertical. This covers large corporations, financial institutions, exempt PF trusts of large corporations, Government and PSU bodies and the behemoth EPFO – the Government run PF organization.
Large corporations – once seen as deployers of very short term money into ultra short term funds (transactional business) are increasingly looking at treasury management as a profit centre, thus sparking much deeper engagement and insights from institutional teams of AMCs with treasurers as they explore duration based strategies.
Large corporations also often decide not to hand over their PF corpus to EPFO, preferring to run them as exempt PF trusts, operating within the strict guardrails set by PF rules.
We are also seeing nascent appetite from some treasuries to consider performing credit products (AIFs) as part of their overall yield optimization goals. This is a new but very promising trend.
EPFO and exempt PF trusts’ increasing allocation to equity index funds (Nifty 50 and Sensex 30) have been one of the big sources of inflows that are supporting our markets in the wake of relentless FII outflows in recent years.
PF allocations to equity index funds have increased from a cap of 5% to a cap of 15% of flows. There may be a possibility of another increase to 20% as EPFO seeks ways to maintain portfolio yield in a declining interest rate environment.
Axis AMC has recently won a prestigious mandate to manage the entire exempt PF Trust corpus of Food Corporation of India – a win that Vandana believes can open many more doors over time to build a sizeable mandate book within her institutional business. The mandate covers investments into GSecs, corporate bonds, equity and also alternatives.
From transactions to guidance to mandates – the fund industry’s institutional business is getting a fascinating make over to keep pace with evolving needs of India’s largest investors.