Hit hard by the mass exodus of investors, amounting to an average of over 1 lakh a month, the mutual fund houses are knocking on the doors of Sebi, which in turn, is mulling over possible remedial actions including an expanded distribution model for these investment products.
Over 4 lakh investors are estimated to have closed their mutual fund accounts, as determined by the change in the number of MF folios in the past three months, largely driven by redemption in equity-focused MF schemes. At the same time, the debt market-focused schemes saw a rise in the number of folios (investor accounts) during the period, but such schemes account for under 10 per cent of total number of MF accounts.
According to information available with the Association of Mutual Funds in India (AMFI), the total number of MF folios stood at 4.79 crore at the end of May 2010-- comprising 4.07 crore in equity-focused schemes.
This marks a significant decline from 4.83 crore total folios, including 4.13 crore folios of equity-focused schemes, at the end of February 2010.
While the total number of folios have declined by over 4 lakh during these three months, those of equity-focused schemes have actually declined by about 6 lakh. The non-equity focused schemes actually saw an increase of about 2 lakh folios during this period, but this was not enough to arrest the overall exodus of investors from the MF space.
This exodus has now continued for three consecutive months -- March, April and May -- and the fund houses are getting increasingly concerned about the same, particularly in the backdrop of market regulator Sebi scrapping the entry-load for MF schemes, a senior executive at a fund house told PTI.
While this step was taken late last year in the investors' interest, the distributors have become less interested in selling the MF schemes since then, while products like Ulips, which are life insurance products but invest heavily in stock and bond markets just like MFs, are being sold aggressively because of high commission payouts, the official noted.
The issue has already snowballed into a regulatory turf war between Sebi and insurance watchdog Irda, and an early resolution is necessary to boost investors sentiment, he said.
Even the market regulator Sebi is now looking out at various ways to increase investor participation in MFs, the official said, adding the regulator could look at roping in intermediaries like banks for expanding the reach for investors on the lines of stock exchanges and brokers that have started selling MFs online on their terminals.
When contacted, though a Sebi spokesperson denied that the regulator has asked banks to sell MFs on their terminals, there have been speculation that those fund houses that have been promoted by banking entities have been asked to explore sale of MF schemes through their branch and Internet banking terminals. However, there could be a regulatory hurdle to such arrangements, as an RBI spokesperson said the banks would need the central bank's permission for doing such activities.
Banks are already playing a key role in sale of Ulips and as per results of a new survey, distribution in the case of life insurance is currently highly skewed in favour of unit-linked products (Ulips), according to the latest Irda journal, which noted that Ulip sales account for more than 85 per cent of premium generated by banks.
The concern over investors' flight away from MFs has been compounded by the fact that the stock market has actually registered gains during the three months between March and May, with the benchmark Sensex rising about 500 points and the overall investors' wealth rising by over Rs 1 lakh crore to cross Rs 60,00,000 crore. Also, the number of demat accounts, which are needed for investing in stock market, has also grown during this period.
Some other industry officials, however, exuded confidence that the investors' exodus could be arrested soon, once some kind of stability or clearer signs of uptrend comes in the stock market. The relief is also there in form of the overall assets under management of MFs rising, though not in a large way, the official added.
The total AUM stood at Rs 8,03,559 crore at the end of May 2010, as against Rs 7,81711 crore as on February 28, 2010. While the total AUM declined in March this year, it rose during two consecutive months, April and May.
In terms of folios also, as many as 17 fund houses recorded an increase during the last three months, with the Axis MF witnessing the biggest growth. However, the remaining 21 fund houses saw their folios dwindling during the period under review. Reliance MF, the biggest of all, alone saw a decline of more than 1.25 lakh folios.
Others that recorded a decline in folio numbers included SBI, ICICI Prudential, UTI MF, AIG Global, Deutsche AMC, DSP Blackrock, Escorts, FIL Fund, Fortis, Franklin Templeton,HSBC, JM Financial, JP Morgan, Kotak, LIC, Mirae Asset, Morgan Stanley, Principal PNB, Shinshei and Tata MF.
Those recording an increase in folio numbers during March-May were Axis, Baroda Pioneer, Benchmark, Bharti Axa, Birla Sunlife, Canara Robecco, Edelweiss, HDFC, IDFC, ING, L&T, Peerless, Quantum, Religare, Sahara, Sundaram BNP Paribas and Taurus.
