MF investors may number fewer than you think

Launch of an exercise to cut duplication in investor accounts suggests actual number could be less than 10 million

The total number of unique mutual fund (MF) investors in India might be far less than this city’s population.

A recent exercise in allocating common account numbers (CANs) to investors with multiple folios has thrown up interesting results. A total of 90,000 folios processed revealed only 15,000 unique PAN numbers, according to data from MF Utilities (MFU), a common sector platform. This suggests, on average, every individual investor has at least six folios.

 

The total number of MF folios is 42.39 million. Applying the ratio of 1:6 would peg the actual number of unique investors at around seven million. The 2011 census put Mumbai’s population at 12.4 million.

Conventional wisdom had pegged the ratio of duplication at four folios per unique investor.

MFU, brainchild of the Association of Mutual Funds in India has created a common platform for MF transactions. It has begun to enroll investors by giving each a CAN.

 

“There are a number of reasons investors put their money in through different folios. New systematic investment plans (SIPs) are often started under a different folio. There are times when the folio number is not handy when one is investing in a tax-saving scheme and the investment deadline is drawing near,” said Dhirendra Kumar, chief executive (CEO) of fund tracker Value Research.

MF officials said it was too early to draw a conclusion from the data. “One will have to wait for the exercise to carry on longer before one can determine if this ratio holds true across the board,” said V Ramesh, managing director at MFU.

 

Sundeep Sikka, president and CEO of Reliance Capital Asset Management, also said it was too soon to extrapolate the numbers. Beside, he said, investors take time to come around to the idea of investing in MFs.

“They have only been investing in bank deposits. It takes generations to change investment patterns. I am told that in Canada, it took three decades to make the shift from bank deposits to MFs. It will take time but will definitely happen,” he said.

Dhirendra Kumar added that people with the most folios would be the first ones to consolidate their accounts through a CAN. The exercise looked at 90,000 investor accounts. Investors requested CAN numbers from 750 towns.

“Investors say MFs are like shares. Equity is like gambling. These attitudes are slowly correcting. A new class of advisors are positioning funds as a more long-term investment…A target of two crore (unique) investors is optimistic but achievable (over the next five years),” said Axis MF managing director Chandresh Nigam.

Fund assets have been on the rise in recent times, crossing Rs 12 lakh crore for the first time this year. Investor sentiment has picked up due to stellar returns in the stock markets, say sector officials.

Interestingly, platforms like MFU could provide the means to increase penetration, believe experts. Many fund houses now allow for online processing of investment requests, including through MFU.

“…35% of the transactions received in MFU are submitted online by the distributors…If a customer wants to do an asset allocation in five funds, he has to fill five forms and write five cheques. With MFU, the customer can fill a single form and cheque, and allocate his amount in five different schemes across AMCs. This tremendously reduces duplication,” said V Ramesh.