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Entry load ban has not changed MFs' fortunes

Three years on, the industry continues to lose money in equities and the investor base has kept shrinking

It was supposed to be a game changer. But even after three years, the awaits the big positive that was supposed to come from the ban on entry load, namely, the return of the retail investor.

The investor base in equities, has shrunk since by four million; monthly sales are down from Rs 9,000 crore to less than Rs 3,000 crore, new fund offers are down and most fund houses are struggling to make money.

The Securities and Exchange Board of India, had made the effective from August 1, 2009. Prior to it, distributors were getting 2.25 per cent as load from investors’ investment in equity MFs.

Fund officials had criticised the regulator’s move, as they were given no chance to acclimatise. Instead, the ban was imposed in less than a month. In comparison, Britain imposed a similar guideline across financial products but gave the industry two years to prepare.

What has changed in the three years is the growing concern that fund houses are suffering because of the ban. There have been talks to bring it back in some form or other. Stake-holders have met finance ministry officials. Even the Prime Minister has expressed concern about the slowdown in the asset management business. Sundeep Sikka, chief executive officer (CEO) of India’s second largest fund house, Reliance MF, says, “No doubt, the entry load ban was a positive step which made one of the cheapest of products. But new investors did not come, as it created a disconnect between the industry and investors.”

Experts say the ban was meant to attract retail investors but somehow, “retail was the worst impacted”. Nimesh Shah, MD and CEO of ICICI Prudential MF, says: “Abolition of entry load has made an MF a beautiful product for investors who can avail the expertise of fund managers at a nominal cost. But we wonder why investors are not coming in.”

The problem remains disinterest among distributors for selling MF plans, as they get low commissions. At one time, the number of registered distributors with the industry body, the Association of Mutual Funds in India, had more than halved. Experts say the condition remains unchanged.

Independent financial advisors are the worst hit, as they say they cannot meet their expenses by selling MFs. They have shifted to selling more insurance products, as fees are higher in that business. When replaced as Sebi’s chief in February last year, hopes had risen among fund houses for industry-friendly steps.

Various measures were taken by Sinha to help distributors but the decline in the industry’s assets has continued, the fall in equity folios has not been arrested and sales officers are continuing to see existing investors exit and an absence of fresh investment.

In 2009-10, net inflows in pure equity schemes almost halved to Rs 595 crore against the previous year, while in 2010-11, it witnessed the largest net outflow at Rs 13,405 crore.

image
Business Standard
177 22
Business Standard

Entry load ban has not changed MFs' fortunes

Three years on, the industry continues to lose money in equities and the investor base has kept shrinking

Chandan Kishore Kant  |  Mumbai 



It was supposed to be a game changer. But even after three years, the awaits the big positive that was supposed to come from the ban on entry load, namely, the return of the retail investor.

The investor base in equities, has shrunk since by four million; monthly sales are down from Rs 9,000 crore to less than Rs 3,000 crore, new fund offers are down and most fund houses are struggling to make money.

The Securities and Exchange Board of India, had made the effective from August 1, 2009. Prior to it, distributors were getting 2.25 per cent as load from investors’ investment in equity MFs.

Fund officials had criticised the regulator’s move, as they were given no chance to acclimatise. Instead, the ban was imposed in less than a month. In comparison, Britain imposed a similar guideline across financial products but gave the industry two years to prepare.

What has changed in the three years is the growing concern that fund houses are suffering because of the ban. There have been talks to bring it back in some form or other. Stake-holders have met finance ministry officials. Even the Prime Minister has expressed concern about the slowdown in the asset management business. Sundeep Sikka, chief executive officer (CEO) of India’s second largest fund house, Reliance MF, says, “No doubt, the entry load ban was a positive step which made one of the cheapest of products. But new investors did not come, as it created a disconnect between the industry and investors.”

Experts say the ban was meant to attract retail investors but somehow, “retail was the worst impacted”. Nimesh Shah, MD and CEO of ICICI Prudential MF, says: “Abolition of entry load has made an MF a beautiful product for investors who can avail the expertise of fund managers at a nominal cost. But we wonder why investors are not coming in.”

The problem remains disinterest among distributors for selling MF plans, as they get low commissions. At one time, the number of registered distributors with the industry body, the Association of Mutual Funds in India, had more than halved. Experts say the condition remains unchanged.

Independent financial advisors are the worst hit, as they say they cannot meet their expenses by selling MFs. They have shifted to selling more insurance products, as fees are higher in that business. When replaced as Sebi’s chief in February last year, hopes had risen among fund houses for industry-friendly steps.

Various measures were taken by Sinha to help distributors but the decline in the industry’s assets has continued, the fall in equity folios has not been arrested and sales officers are continuing to see existing investors exit and an absence of fresh investment.

In 2009-10, net inflows in pure equity schemes almost halved to Rs 595 crore against the previous year, while in 2010-11, it witnessed the largest net outflow at Rs 13,405 crore.

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Entry load ban has not changed MFs' fortunes

Three years on, the industry continues to lose money in equities and the investor base has kept shrinking

It was supposed to be a game changer. But even after three years, the mutual fund sector awaits the big positive that was supposed to come from the ban on entry load, namely, the return of the retail investor.

It was supposed to be a game changer. But even after three years, the awaits the big positive that was supposed to come from the ban on entry load, namely, the return of the retail investor.

The investor base in equities, has shrunk since by four million; monthly sales are down from Rs 9,000 crore to less than Rs 3,000 crore, new fund offers are down and most fund houses are struggling to make money.

The Securities and Exchange Board of India, had made the effective from August 1, 2009. Prior to it, distributors were getting 2.25 per cent as load from investors’ investment in equity MFs.

Fund officials had criticised the regulator’s move, as they were given no chance to acclimatise. Instead, the ban was imposed in less than a month. In comparison, Britain imposed a similar guideline across financial products but gave the industry two years to prepare.

What has changed in the three years is the growing concern that fund houses are suffering because of the ban. There have been talks to bring it back in some form or other. Stake-holders have met finance ministry officials. Even the Prime Minister has expressed concern about the slowdown in the asset management business. Sundeep Sikka, chief executive officer (CEO) of India’s second largest fund house, Reliance MF, says, “No doubt, the entry load ban was a positive step which made one of the cheapest of products. But new investors did not come, as it created a disconnect between the industry and investors.”

Experts say the ban was meant to attract retail investors but somehow, “retail was the worst impacted”. Nimesh Shah, MD and CEO of ICICI Prudential MF, says: “Abolition of entry load has made an MF a beautiful product for investors who can avail the expertise of fund managers at a nominal cost. But we wonder why investors are not coming in.”

The problem remains disinterest among distributors for selling MF plans, as they get low commissions. At one time, the number of registered distributors with the industry body, the Association of Mutual Funds in India, had more than halved. Experts say the condition remains unchanged.

Independent financial advisors are the worst hit, as they say they cannot meet their expenses by selling MFs. They have shifted to selling more insurance products, as fees are higher in that business. When replaced as Sebi’s chief in February last year, hopes had risen among fund houses for industry-friendly steps.

Various measures were taken by Sinha to help distributors but the decline in the industry’s assets has continued, the fall in equity folios has not been arrested and sales officers are continuing to see existing investors exit and an absence of fresh investment.

In 2009-10, net inflows in pure equity schemes almost halved to Rs 595 crore against the previous year, while in 2010-11, it witnessed the largest net outflow at Rs 13,405 crore.

image
Business Standard
177 22

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