Business Today

Struggling to retain retail investors

The mutual fund industry is witnessing an exodus of investors, but it has not been able to come up with a definite plan to stop the outflow.

twitter-logo Dipak Mondal        Print Edition: Feb 20, 2011

The mutual fund , or MF, industry appears to be on a losing streak. Ever since the Securities and Exchange Board of India, or SEBI , banned entry loads - charges collected by fund houses from investors at the time of investment - the number of retail investors in MFs has been falling consistently. The number of investor folios dropped by 10 lakh between September 2009 and September 2010. Equity funds have seen the closure of around 19 lakh folios over a year since September 2009. The entry load ban came into effect in August 2009. Industry players, financial planners ('distributor' is not in vogue ever since the regulator banned entry loads and asked MF agents to offer advisory services for a fee) and investor representatives have been spending hours on deliberations and meetings to find a solution to stop the mass exodus. However, the industry doesn't seem to have a definite plan to get out of the precarious situation.

"Only large-ticket investors are coming in. Frankly, I am unable to figure out how we can increase retail participation," says Waqar Naqvi, Chief Executive Officer, Taurus Mutual Fund. However, everyone is not so pessimistic. Some industry players believe that their efforts will help generate interest among masses.

Improving awareness
In a country, where 55 per cent of domestic savings go into bank fixed deposits, the MF industry sees a huge scope for growth. "Investors are still not aware that inflation eats into a chunk of their savings and they need instruments that give healthy inflation adjusted returns. Equity MFS are the best way to beat inflation and the industry needs to drive home this message among investors," says Jaideep Bhattacharya, Chief Marketing Officer, UTI Mutual Fund. The Association of Mutual Funds in India, or AMFI, has initiated a programme under which each fund house needs to organise at least five investor awareness programmes every month. However, the industry estimates that the cost of investor education could go into thousands of crores of rupees and it can't bear the cost alone. "Usually MF advertisements require a lot of disclosures. If the regulator allows us to provide those disclosures only on the website and use the advertisement space for investor awareness, it would be a great boost," says Sanjay Sinha, CEO, L&T Mutual Fund.

Focus on SIPs
After the ban on entry loads, fund houses have shifted their focus to systematic investment plans, or SIPS. Milind Barve, MD, HDFC Mutual Fund, says, "SIPs have become the singlepoint religion of our asset management company, or AMC. to get more long-term investors. Our growth over the past four years has been through SIPS." However, distributors and financial planners say that the economics of SIPS doesn't suit them.

Girish Batra, CEO, NetAmbit, a distributor of financial product, says, "For getting a SIP, a financial planner needs to visit an investor at least a couple of times. The incentive model, even in the pre-entry load ban period, was not good enough to recover the salesperson's conveyance cost of visiting the prospective customer. How can one expect us to sell SIPs when there is no incentive?"

Goal-based products
When it comes to goal-based savings products - be it pension plans, child plans or retirement plans - the insurance industry has succeeded in selling such schemes more aggressively than MFs. "MFs have been selling more return-based products and there is a need for more goal-based plans to ensure long-term investments. There is certainly a shift towards such products," says Bhattacharya. Though there are six child plans and retirement plans in the MF sphere, they were all launched at least 5-10 years ago. Now fund houses are trying to launch products in this category. Fidelity and Peerless have sought approval from SEBI for launching child plans while IDFC Mutual Fund has applied for a retirement plan.

Battle with FDs
Fund houses have realised that they need to have more products in the fixed-income category to attract riskaverse investors who have so far preferred bank fixed deposits. They are now launching more capital protection-oriented funds, monthly income plans and fixed maturity plans. "The market crash of 2008 scared equity MF investors. That is why we are largely shifting to low-risk products," says Rajeev Bajaj, Vice-Chairman and Managing Director, Bajaj Capital.

Caveat Emptor
Notwithstanding all the efforts by mutual fund players, the industry needs to address the issue of incentivising financial planners in order to push the sales of MF. "Unless we address the issue of distributors' fee, it would be hard to increase the reach of such products, regardless of the innovations we make in our products," says Krishnamoorthy Vijayan, CEO, IDBI Mutual Fund.

Courtesy: Money Today 

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