Lack of penetration, reduction in distributor base and swift changes in regulations, besides adverse market conditions continue to hurt the mutual fund industry this year.
Speaking at the Business Standard Fund Cafe, top CEOs of the asset management industry were unanimous that the problems they were facing were largely due to the lack of financial literacy. As a result, the industry was paying more attention to increasing the penetration to attract long-term stable fund inflows. “While people keep on talking about high savings rate in India, investment through stocks or mutual funds is not so high,” said Sundeep Sikka, CEO of Reliance Mutual Fund.
While all CEOs agreed that regulations set by the Securities and Exchange Board of India (Sebi) had been benefitting investors, the issue was the pace at which those were being changed. “When there are too many changes too quickly, one does not get the desired results,” explained Franklin Templeton Investments President Harshendu Bindal.
According to the CEOs, providing more information to investors does not mean that they understand it more. Too much of information, at times, could end up confusing investors. “Today, the industry discloses more than anyone else. I believe too much of information paralyses the mind,” added Sikka.
“I am not sure if that is good for the industry,” agreed IDFC Mutual Fund MD & CEO Naval Bir Kumar, adding the Indian mutual fund industry was the most micro-regulated industry in the world. “Even the font size of the advertisements has been prescribed,” added Kumar.
Though industry players admitted things had settled down considerably after the entry-load ban, the distributor base and, as a result, growth in the investor base, had suffered.
More From This Section
The recent circular from the regulator on allowing distributors to charge transaction fees of Rs 100-150 on a minimum investment of Rs 10,000 has also received a lukewarm response. “It is not that the load regime is coming back. It’s a baby step to ensure some costs are recovered,” said Birla Sun Life Mutual Fund CEO A Balasubramanian. Sikka felt the fee would help in penetration of mutual fund products in smaller cities and towns.
On top of it, India’s poor financial literacy poses the biggest challenge for the growth of the mutual fund industry. According to them, inculcating better investment habits and spreading awareness about mutual funds, among other financial products, hold the key to the growth of funds in the country. “There is no other way by which retail investors can participate in equities but mutual funds,” says Kotak Mutual Fund CEO Sandesh Kirkire.
He adds: "There are around 16 million demat accounts in India. However, investors investing in MFs are more than those investing directly into equities. The cost that a customer pays is a regulated cost."
According to him, the issue is how to bring long-term funds and address financial illiteracy. “We are reasonably bullish on the future of the industry,” he added. Currently, less than four per cent of India’s population invests in MFs.
“There cannot be any short-cut to reach out to the under-penetrated market but to create financial literacy and spread knowledge about what a mutual fund is,” added Sikka. For this, the industry is conducting around 500 investor awareness programmes every month across the country.
Fund managers are perturbed by the fact that investors tend to take MF only as investments in equities. The industry sees that in the near term selling debt funds can be a challenge for distributors.
But there is hope. ICICI Prudential Mutual Fund CEO Nimesh Shah said: “Convincing distributors that they should be in all asset classes is now becoming easier.”