The mutual funds industry, while sounding optimistic over the macro view, is slightly dejected. They were looking out for a strong movement by the government to step up investment by leveraging public savings.
?At the moment overseas investors dominate the market movement, both the direction and velocity. And the government had a chance to change it in the current announcement, but has refrained from doing it,? says a morose fund manager. The industry, which was reeling under redemption pressure in September and October 2008, was just about getting its bearings back.
Asset under management grew to Rs 6.7 lakh crore in June, a growth of around 4.9% over the previous month. However, the market regulator Securities & Exchange Board of India (Sebi) had, in June 2009, made sweeping changes in the operational aspects of the industry.
Mutual fund players expected the government to increase the limit for tax rebate from the current Rs 1.5 lakh to a bigger number. Investors could participate in the mutual funds and claim tax rebate under section 80 (c) and mutual funds could then deploy these monies to fund infrastructure projects. ?Already the Reliance Infrastructure fund has mopped up Rs 2,300 crore and this shows that investors would like to participate in the India growth story,? the fund manager adds.
?The regulator keeps prodding us to increase retail participation and this move could also have this objective served,? he laments. Increasing the retail base would also mean that the institutional participation in the market is higher and the dependence on the FIIs is lower. Last year when the FIIs pulled out around $6 billion from the Indian market, the indices plunged to 7,500 levels. ?We must not allow one single set of investor to dominate the market space, it is a huge risk to run. It could potentially damage the Indian economy,? says another fund manager, who does not want to be quoted.
Operationally, the woes of the fund players has grown as Sebi, with an intention to build transparency in the system, has asked the distributors to collect their commission from investors and not from the asset management company. The distributors will now have to negotiate with the investors to get their fees.
?This could have the distributor try and push other investment products like unit linked plans which have a very high commission payout for agents and distributors,? says the fund manager. Only 5-6% of the investors directly invest in the mutual funds segment, and distributors are considered to be the key channel members.
Fund managers are hitting their desks and huddling together to come up with a plan to tackle these new predicaments and get to garnering funds.