The Indian mutual fund (MF) houses, like the country’s equity markets, have seen their hopes rising and falling in recent months, mainly due to volatile market conditions and the government’s inability to come up with strong measures to help the struggling industry.
Talk of a return of entry load on equity schemes and the proposal to allow the Rajiv Gandhi Equity Savings Scheme (RGESS) to be routed through MFs had lifted the hopes of fund houses. However, lack of action from the government later doused such expectations.
For example, on the day the Securities and Exchange Board of India (Sebi) made a plea to the Union Ministry of Finance (MoF) to route RGESS via mutual funds, one chief executive officer texted a message, “God bless (Sebi chief) U K Sinha”. Later, when a top executive at Sebi told Business Standard, “The government is not listening to us on the matter”, all hopes were grounded.
However, Prime Minister Manmohan Singh’s recent indication that the government would take steps to revive the industry has instilled optimism in fund houses. “There are issues about the mutual funds industry which need to be resolved,” the prime minister said last week.
Executives are expecting a clear road map soon. But, they all are, till now, clueless on the measures the government is planning.
Things might become clearer once officials from MoF meet the MF industry’s chief executives and representatives of Sebi tomorrow.
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“At present, things are quite vague and it’s too early to comment on what would come out of the meeting,” says the official of a large-sized foreign fund house, requesting anonymity.
Executives are happy the government has finally taken notice of the deteriorating situation of the industry.
“It’s more of a realisation that the mutual fund industry does play an important role in the overall growth of the economy. MFs should be a major part of the vibrant capital markets. Modalities can be worked out, but the intent is important which, thankfully, has come,” says the chief executive officer (CEO) of another fund house on condition of anonymity.
Sebi has reportedly pitched yet again for routing RGESS through MFs, with additional tax sops. Chairman Sinha hinted about it in the recently-held MF summit, organised by the Confederation of Indian Industry.
“Sebi is of the view that first-time investors should come to the market through the mutual fund route and have fund managers investing on their behalf. We have represented (to the government) that investment through the mutual fund route is the best possible way. We will continue to pursue that with the government,” Sinha had said.
The government has allowed 50 per cent of tax deduction on investments up to Rs 50,000 for first-time investors with a total taxable income of Rs 10 lakh or less per annum. Though it sounds good and could be great substitution for the equity-linked savings schemes (which will cease to exist once the Direct Taxes Code kicks in), fund managers say it is not a well-thought process and the concept is based on a flawed theme.
“How to determine and identify a first-time investor? As of now, there is no fool-proof method to prove someone is a new investor. Several investors do not even have a permanent account number (PAN) but they are still investing in micro SIPs (systematic investment plans),” says CEO of a small-sized foreign fund house.