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Opportunity lost

Why haven’t mutual funds been able to mop up larger savings from retail investors? Are they losing out to the insurance sector?

SHOBHANA SUBRAMANIAN (Moderator): The market is hitting 19,000 levels but despite this the retail investor does not seem to have invested too much in mutual funds. The total assets under management are less than Rs 500,000 crore and retail participation is not too high.

Why is it that the industry is not able to attract retail money when the insurance sector is doing brisk business with ULIPs? Are ULIPs more attractive for distributors because they fetch commissions far higher than those for mutual funds? Are mutual fund distributors busy churning the portfolios of their clients so that they earn more commissions? To discuss these issues we have with us today an eminent panel comprising Milind Barve, managing director, HDFC AMC, Vivek Kudva, president, Franklin Templeton, Ashu Suyash, MD & country head, Fidelity Fund Management, Syed Shahabuddin, MD & CEO, SBI Mutual, Nilesh Shah, CIO & Dy MD, ICICI Prudential AMC, Anup Maheshwari, executive VP, DSP Merrill Lynch and Mukul Gupta, CEO, Birla SunLife AMC. Perhaps the panelists could introspect a little as to why retail investors are so risk-averse and come up with ideas to induce them to put money in equities.

NILESH SHAH CIO & Dy MD, ICICI Prudential AMC MFs are like Udupi restaurants which are expected to serve five-star fare

NILESH SHAH: First of all, I would like to dispute the fact that there are no retail investors in mutual funds. We recently closed our IPO and received189,000 applications, all from retail investors. The assets under management for equity schemes is probably Rs 150,000 crore, which is a reasonable sum and is essentially retail money. We may not be as popular among retail investors as fixed deposits but over time, we do feel that word-of-mouth publicity will help and things will change.

ASHU SUYASH: I think this should be a discussion on lower retail participation rather than the lack of it. Three-year data shows that the number of investors has doubled. The mindset of retail investors is that they would like a guarantee, but there is little awareness about a mutual fund or how it is constructed. Also, investors are unaware that if time horizon is long enough, they can make money.

Again, how do you reach out to 300-400 cities where there is potential and broad-based distribution beyond the top 40-50 cities? Many more distributors today are selling mutual funds together with insurance or equities, which is a good thing. Three years ago there were less than 25,000 IFAs. Today, they number more than 60,000. Banks too have stepped in and we need to see how this can be scaled up.

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Business Standard • FUND MANAGER • October 2007