The Union Budget has ignored the mutual fund industry. A list of suggestions was forwarded by the Association of Mutual Funds in India (Amfi) to the government prior to the budget. However, not a single recommendation was considered. Amfi chairman A P Kurien believes that mutual funds would have to work hard this year to attract investment. Good performance is the only way investment can be attracted. He spoke to Rajas Kelkar on issues before the industry following the budget. Excerpts from the interview:
Business Standard: The budget did not spell out anything for the mutual fund industry. Why do you think the government has ignored the industry?
A P Kurien: We suggested a set of tax exemptions for attracting investors to the industry. The government has not accepted any of them. It must be understood that the long-term capital for huge infrastructure projects has to be generated from mutual funds. Investors need some sops to come to us.
Among things that we suggested included increase of exemption limit under Section 80L from Rs 3000 to Rs 10000. We also mooted that the double taxation of dividend should be removed. We are ready to segregate our income from the dividend payouts. To generate long-term savings we requested the government to allow exemption up to Rs 30,000 under Section 88. We also requested for a notification from the government to allow equity-linked savings scheme (ELSS) to become open-ended. The government has not considered a single recommendation.
BS: Does that have to do with the performance of the industry?
APK: The performance of the industry has improved considerably this year. If you consider collections, they have been twice as much collected by primary equity issues. In 1997-98, mutual funds collected Rs 10,042 crore which includes Rs 332 crore collected by the public sector ones, Rs 1,014 crore garnered by the private sector and Rs 8,696 crore collected by the Unit Trust of India (UTI). This is against Rs 4,777 crore collected in 1996-97. The primary market raised Rs 4,567 crore against Rs 14,275 crore during 1996-97.
BS: What about returns to the investor?
APK: Mutual funds have been offering annual returns of 15 per cent on an average. Majority of growth funds have outperformed their benchmark indices this year. Income funds have done even better. However, I agree that every fund has to set a track record as far as performance goes. It is only superior performance that will attract investors. The government in its wisdom has decided to ignore our requests. However, we hope that through better performance we will be able to attract more investors. We have to convince the investor that it is unsafe for him to take a risk in a volatile market. As far as any further follow-up on the suggestions to government is concerned, it is up to the government to decide.
BS: There have been instances where parent companies have bailed out mutual funds. Do you think this is a key reason for such an indecision?
APK: The parent or the trustee company is supposed to bail out the mutual fund if the fund fails to deliver. We have seen Canara Bank shell out Rs 650 crore. There will be many more in the next few months. These funds are mainly from the public sector. We will see more public sector banks shelling out money to pay to the investor.
The primary reason for the problem is the assured return offered by these funds. Amfi has already discouraged any kind of assured return to mutual funds. We expect that in future only performance will be the guarantee for any return.
BS: What is the status of Sebi inspection of mutual funds this year?
APK: We are grateful to Sebi for circulating a rule book to inspectors. Inspections of all leading funds have already begun. Sebi has also accepted the suggestion of including remarks or explanation from the mutual fund on the audit report. We hope that a fair view will be taken by the regulator. The confusion over the issue is over.
