In the past two years, the mutual fund space has seen both the good and the bad. This has made investors understand that funds are risky, even though they have the potential of high gains.
There are 35 AMCs now and with many in the pipeline, this number may swell to 50 or more. What does this mean for investors? For one, there has been a sharp increase in choices. This makes it difficult for new entrants and calls for innovations on both the products and services front. The challenge for the innovator is to take the firstmover risk and then face similar offerings from the competition.
For investors, it means more gains from the new offerings. Just like the sachet pack did wonders for the shampoo business, the small and micro-SIPs have helped to expand the market and have allowed small investors living in remote places to access the stock markets for long-term wealth creation. Unit Trust of India, Reliance and Sahara mutual funds offer SIPs starting at Rs 50, which have many takers.
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The micro pension scheme from UTI is another innovation which should encourage the unorganised sector to think about long term savings. Bharti AXA has taken things to the next level by launching a daily SIP. This reduces the anxiety of investors about market volatility.
A popular trend in the mutual fund industry is empowering the investor. AMCs are considering funds which will have no entry or exit load. This will reduce costs and increase gains. The January 2008 regulation by Sebi that no entry load is to be charged for investments that are made directly through the AMCs is a step in this direction. The proposed variable loads should further empower investors.
The Edelweiss Diversified Growth Equity fund offers a unique proposition. There are three plans under this fund: Plan A, B and C. Investments under Plan A have an entry load of 2.25%, whereas investments under Plan B and C have none. Another fund house with a similar offering is the Deutsche AMC, which has introduced no-load plans under two diversified equity funds—DWS Alpha Equity and DWS Investment Opportunity.
The Sahara Mutual Fund has introduced a performance-linked variable fee structure. The fee depends on the scheme’s daily performance. The two conditions for charging an investment management and advisory fee are that the net portfolio return (NPR) be greater than zero and the benchmark return (BSE 500). This is a daring move where the fund charges are based on performance and not maintenance.
An innovative concept is the insurancelinked funds started by the DSP BlackRock fund house and improved by Kotak, Birla and Reliance mutual funds. The launch of quant funds by a few AMCs and the targetreturn fund launched by ICICI Prudential, are other good schemes. The Taurus Ethical Fund is an advanced step which will see more buzz among the new fund offerings.
It will be interesting to have AMCs that target specific niches and build expertise for serving investors belonging to those particular areas. Perhaps that stage of development has arrived for this industry.
Dhirendra Kumar is CEO, Value Research
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