MF industry: Market rally, lockdown easing spur four-fold rise in IFAs

Number of new entrants still lower than previous fiscal's monthly average

Individual mutual fund (MF) distributors are seeing an increase in their numbers, with the recent market rally and partial lifting of the lockdown improving sentiment.

In July, the number of newly registered independent financial advisors (IFAs) stood at 330, which was over 4x June’s tally.

“A combination of the markets seeing a sharp bounce-back since March and the gradual opening up of economic activity has aided sentiment. We have seen higher traction for MF products in recent months, especially among millennials and the middle-aged group,” said Ritesh Sheth, co-founder of Tejas Consultancy.

Renewals by existing IFAs have also seen a rise. In July, renewals stood at 1,514 — 20 per cent higher than June. Heightened volatility amid the outbreak had led to high redemption pressures in the MF industry. In July, the sector had witnessed negative equity flows for the first time in four years.

According to industry sources, the recent wind-up episode at Franklin Templeton MF, coupled with market volatility, had led to the exit of some players. Distributors say it would be better to wait and watch if the rise in new registrations is sustainable.

“While distributors have seen a pick-up in underlying assets on account of market recovery, broader issues — pertaining to lower commissions — remain. Existing IFAs are still concerned over declining commission payouts, especially from the larger-sized MFs,” said Srikanth Matrubai, chief executive officer of SriKavi Wealth.

MF distributors have seen incomes shrink, with the gross amount paid by fund houses slipping to a three-year low of Rs 6,134 crore in FY20. The payouts were 22.7 per cent lower than the previous year’s tally of Rs 7,938 crore.

The new registrations in July were still below the average monthly registrations seen during the previous financial year. In July 2019, average registrations stood at 716.

Industry participants say some insurance players are also entering the MF distribution business in order to diversify their offerings. “Insurance advisors are also showing interest. Some existing MF players are getting spouses or children registered as IFAs, as part of their succession planning in light of the outbreak,” said Matrubai. Players say growth potential remains high. “There remains lot of room for growth, given the low penetration of MF assets in the country,” pointed out Rushabh Desai, a Mumbai-based MF distributor.

The current MF assets-to-GDP ratio in India stands at 11 per cent, which is significantly lower than other developing countries as well as several developed countries.