Equity fund inflows may dip 30% in July

PAN norm may see mutual funds putting off new scheme launches.

Domestic fund houses expect a 30-40 per cent slowdown in inflows in equity schemes in July as the Securities and Exchange Board of India has made it mandatory for existing as well as potential investors to submit a copy of the permanent account card (PAN) or an evidence of having applied for a PAN card from July 2, fund officials and distributors said.

Fund house officials have also expressed concerns on achieving the targets set in some new fund offers, while some of them are planning to even postpone their new scheme launches so that investors get time to apply for a PAN card.

The market regulator recently made PAN as the sole identity for all transactions in the securities market, instead of having multiple identities such as the Mutual Fund Identification Number, that was scrapped on Jan 2. This is in line with the proposal in the Union Budget for 2007-08

Sebi had earlier asked fund houses to make the submission of a copy of the PAN card mandatory from July 2, but extended the date to December 31 as a large number of investors are yet to apply for a PAN card.

The regulator has mandated that, from July 2, investment applications without a certified copy of PAN should enclose:

In case of investments below 50,000 rupees: A copy of the evidence of having applied for PAN (acknowledgement copy of Form 49A) until the PAN is received.

In case of investments above Rs 50,000: A copy of the evidence of having applied for PAN (acknowledgement copy of Form 49A) and a completed Form 60/61 along with the address proof until the PAN is received.

From January 1, mutual funds will not accept copy of evidence of having applied for PAN/Form 60/Form 61 and it will be mandatory for all investors to provide a certified copy of PAN card for all kind of investments.

The existing investors who have PAN cards, have been asked to submit a certified copy to mutual funds, officials said.

J Rajagopalan, managing director, Bluechip Corporate Investments, said, "Sales will be impacted by 30-40 per cent till the next one month." Bluechip Corporate Investments is a Mumbai-based distributor of mutual fund schemes.

SBI Mutual Fund's chief marketing officer, Srinivas Jain, also expects a slowdown until all investors get their PAN cards. But he emphasized that the impact would only be short-term in nature as the application proof can be provided.

Citing concerns, Sameer Kamdar, national head, Mata Securities, said, "When the fund industry was still in the process of widening its reach in the retail segment, this move may shy away investors."

There could be a poor response to the current new fund offers and delays in launching new schemes, mutual fund officials said.

Some fund houses such as Reliance Mutual Fund and UTI Mutual Fund have recently floated new schemes. UTI Mutual Monday floated its lifestyle fund, targeting to mop up over Rs 21 billion.

UTI Mutual Fund's chief marketing officer, Jaideep Bhattacharya, said, "Yes, our NFO is being impacted. Only 10-12 per cent of the investors have a PAN card. Since our distribution is across remote districts, we are working to see that all investors have it, by issuing a PAN form along with each mutual fund application form."

According to an official at JM Financial Mutual Fund, the fund house is considering postponing its contra fund offer, slated to open on Monday.

Reliance Mutual Fund's official, however, denied rejecting any applications. "We are accepting applications without the PAN or application form copy. However, we will not allocate the units of the scheme to those investors who do not give us the PAN card copy or evidence of having applied for it before the allotment date", an official stressed.

A few fund distributors pointed out that Reliance Mutual Fund was also distributing PAN application forms along with the MF application forms.

India's largest fund house aims to garner Rs 30-40 billion through Reliance Equity Advantage Offer, which is open for subscription from June 12-July 10.

Lotus Mutual Fund has announced a new scheme, which will be open for subscription on Monday.

Denying reports that mutual funds have frozen existing systematic investment plan accounts, an official at a leading fund house said, "No, there is nothing like this. No SIP has been frozen. But, yes, if the investor does not produce PAN proof by December 31, then investments will be redeemed."

The fund distributors said none of the existing SIPs have been frozen. The worst-hit would be the micro SIPs that target retail investors from remote areas with as little as Rs 50 or 100 as monthly investments. A level-playing field across all the sectors of the financial services industry must be maintained, distributors added.

Kamdaar of Mata Securities said, "When insurance companies have to produce PAN cards for investments above Rs 50,000 and bank deposits worth Rs 20,000 and above, the same set of rules must also be applicable to the fund industry."

FRYING PAN

The market regulator recently made PAN as the sole identity for all transactions in the securities market

Some fund house executives expressed concerns on achieving the target set in some new fund offers

Sebi had earlier asked fund houses to make submission of a copy of the PAN card mandatory from July 2, which was extended to December 31

Existing investors, who have a PAN card, have been asked to submit a certified copy to mutual funds