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| No relation between fund performance and inflows: Report |
| BS Reporter / Mumbai Jun 29, 2010, 00:02 IST |
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The performance of schemes has no bearing on mutual fund inflows, according to a report by Boston Consulting Group (BCG) and Computer Age Management Services (CAMS).
The study compared the five-year performance of similar schemes (similar investment objectives) with inflows. “Branding, marketing and compensation (to distributors) seem to have a heavy bearing on inflows. This is what the regulator wants to set right,” said Direndra Kumar, CEO, Value Research, a mutual fund tracking company.
However, Nilesh Shah, deputy MD of ICICI Prudential, said, “Performance is important, but not the only thing. Along with performance, there are variables like confidence, trust, delivery mechanism and service that attract inflows.”
The report said while there was a loose correlation between market conditions and inflows, there was a base created during negative market conditions. “Irrespective of the sharp drop in the Nifty, the inflows do not drop beyond a certain level,” notes the report. This is because of the increase in systematic investment plans (SIPs), whose share of total inflows has risen from two per cent in 2005 to 19 per cent in the first quarter of 2010.
Moreover, retail investors, who have an average holding period of 33 months, are major subscribers to SIPs and equity-linked saving schemes (ELSS). High net worth individuals’ average holding period was 12 months, said the report. It added that 72 per cent redemptions in equity funds from April 2008 to March 2010 saw investors make money. During the period, only half of investors in new fund offers (NFOs) made some money, while the rest lost.
“Lazy money makes more money, is what we hold. It is pertinent to have a strong retail holding as these investors are less risk averse and make money over a period,” said Sundeep Sikka, CEO Reliance Mutual Fund, whose more than 90 per cent equity investors are from the retail segment. He said it was unfair to look at NFO returns over a short period as most NFOs happened in 2007 when stock markets had peaked.
However, the report said there was a distinct concentration of investors geographically. Top 30 cities account for 90 per cent assets under management. The penetration is yet to happen. Fund houses are expected to reach out to smaller towns by using innovative distribution models. According to HN Sinor, CEO, Association of Mutual Funds of India, “I don’t see new fund houses reaching out to smaller towns. But yes, the established players are doing it.”
The BCG report said the changes brought in by the Securities & Exchange Board of India in removing the entry load and bringing in transparency had seen commissions fall from 1.8 per cent in 2008 to 0.9 per cent in 2010. Shah said, “Low-cost and effective distribution models will evolve over a period of time as fund houses learn to educate investors and create a ‘pull’ rather than a push. This will also aid penetration in the long run.”
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