Mutual funds: Entry load might make a comeback as fund houses battle downturn

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Mutual fund investors may again see a change in the way the industry charges them to keep themselves and the distribution community afloat. Mutual fund investors may again see a change in the way the industry charges them to keep themselves and the distribution community afloat.
SummaryThere's need to evolve better mechanisms to reward distributors and not burden new investors.

criteria for sales in cities beyond the top 15.

Sinha said that the new mutual fund policy will have obligations for players to get business from beyond the top 15 cities and also hinted at actions against the non-serious players. “Those who are non-serious players should not exist,” said Sinha.

Did Sebi move have an impact?

The mutual fund industry had an asset under management of Rs 7,21,888 crore in July 2009. While the Sebi’s no entry load norm came into force beginning August 2009, the industry has over the last four years not moved any farther. As on August 2013, the average AUM for the industry stood at Rs 7,66,103 crore as on Aug 2013. In the same period the equity AUM has come down from Rs 1,68,783 crore to Rs 1,36,066 crore.

Sebi’s recent steps in August 2012 have failed to arrest investors outflow from the industry. While the AMFI data shows that in the period between October 2012 and March 2012 the equity oriented schemes witnessed a decline in folio numbers by 23.8 lakh, according to an insider the outflow continues and in the period between April 2013 and August 2013 almost 14 lakh folios have moved out.

Industry players, however, feel that the markets are undergoing a tough phase and the investor confidence is on a low, which is leading to their outflow. “The environment has improved after Sebi announced measures to allow fungibility of expenses and mutual funds to charge additional 30 basis points as expense ratio for sales in cities other than the top 15 thereby pushing for inclusive growth, but the industry is shrinking,” said the CEO of a small-sized mutual fund.

The murmurs in the industry

While the regulator tried to attract the distributor community towards mutual fund sales by way of introducing a transaction fee of up to Rs 150 in the past and then allowing them to charge an additional fee of 30 basis points as expense ratio, the moves have not had any notable impact and have also failed to rejuvenate distributors.

“Almost 85 per cent of the industry sales happen in the top 15 cities and there is hardly an incentive for distributors in the major markets,” said the CEO of a leading mutual fund on condition of anonymity. “The fact that the industry has not grown even after measures taken by the regulator tells us that we need to think on other ways to

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