Last month, the chairman of the Securities & Exchange Board of India (Sebi), Meleveetil Damodaran, made a vital point on the mutual funds (MFs) industry. Speaking at a CII function on MFs, he urged the industry to examine the possibility of getting different kinds of money into funds, rather than bank overwhelmingly on corporate funds and liquid schemes. In typical fashion, a plainspeaking Damodaran told the gathering that it may be too premature for the MF industry to ?pat itself on the back? as far as growth in assets under management (AUM) is concerned.
The Sebi chairman?s comments could not have come at a more opportune time. For quite some time now, growth in AUM seems to have become a key benchmark by which MFs judge their own performance and that of their peers. Month after month, statements are sent out by large fund houses boasting of having topped AUM rankings. In fact, this paper has also pointed to the ?AUM wars? and also the debate between date-specific AUM rankings and average AUM rankings, which are often different from each other enough to mislead the investor.
The issue which Sebi is rightly concerned about is whether there is a concerted effort by MF players?seen as the best vehicle for the retail investor to park her monies?to draw more individuals into the industry. Or are they merely playing the lazy game of depending on a handful of large corporate investors to play a brazen AUM game? The MF industry, however, defends itself stoutly when confronted with this question. The Association of Mutual Funds in India (Amfi), which is on the verge of emerging as the first major self-regulatory organisation (SRO) in the financial market, says the rush of corporate or institutional funds into MFs is a clear function of demand and supply. In fact, Amfi officials point out that it?s only MFs that provide attractive returns for the surplus institutional funds at the short end. Banks cannot give that kind of returns in such short spans of time. The 6-7% short-end returns which funds can give institutions compares favourably with most banking products. In fact, the MF industry argues that it?s not just corporates, but also trusts and universities which find these returns attractive and hence park their short-term surpluses in MFs. Amfi even argues that the management fees on liquid schemes is so low that it is not a very remunerative option for the fund houses themselves.
However, there?s more to it than that. Scratch the surface periodically, and you find murmurs of some large corporate house or the other parking surpluses in a fund house of choice, leading to a sudden swelling of its AUM, pushing up its ranking in the AUM stakes. This is what leads to concerns being voiced about the need to broadbase the source of funds.
The MF industry, however, seems to have taken Damodaran?s comments in the right spirit. Of late, some of the larger fund houses have even ventured into micro-investment through the systematic investment plans (SIP) route, by roping in non-government organisations (NGOs) to mobilise funds from even lower-income investors. It is also true that over the past couple of years, the share of retail investments has gone up from about 65:35 in favour of corporate money to about equal halves now.
MFs are also aggressively tying up with several state-run banks to ensure their reach widens and spreads to more untapped markets. At last count, over 82 state-run banks had figured as MF distributors. MFs today have over 21 lakh SIP folios alone, 1,244 branches of their own, and the total number of Amfi-registered distributors and agents is now 59,000. Alongside, the industry is working on new products, real estate funds, overseas investments and feeder funds and the like to give more options to the investor.
All these are positive signs, and the industry?s introspection on the need to widen its investor base from the present 2.88 crore folios is heartening. Periodic nudges from the regulator only help the industry attain greater maturity and diversification.