New schemes launched under the Rajiv Gandhi Equity Savings Scheme (RGESS) platform have got a dismal response as the delay in final notifications and requirements, such as opening of a new demat account, has deterred investors from putting money into the scheme.
All of the six fund houses that had launched the new RGESS schemes last month under the RGESS platform have managed to collect the minimum requirement amount of R10 crore, said sources. However, the overall response has been much below expectations. Except for HDFC MF, new fund offers (NFOs) of closed-ended RGESS of IDBI MF, LIC Nomura MF, UTI MF, DSP BlackRock MF and Birla Sun Life MF have got a muted response.
LIC Nomura and IDBI MF managed to collect about R16 crore and R18 crore, respectively. UTI MF is said to have collected about R20 crore. DSP BlackRock has collected about R43 crore, while Birla Sun Life has collected about R40 crore. HDFC MF is the only fund house to have collected over R100 crore with 10,000-12,000 applications.
These figures are a far cry from the expectations that were raised in the pre-NFO period. ?Equity schemes are generally expected to garner at least R70-80 crore per scheme. Since RGESS is a plain vanilla diversified equity product, fund houses were hoping to collect close to R100 crore. However, everyone had to temper their expectations once the NFO period started,? said Anutosh Bose, chief operating officer, LIC Nomura Mutual Fund.
DSP BlackRock and HDFC MF are said to have paid commissions as high as 6-7% to distributors to sell the scheme. Also, in a desperate bid to shore up collections, fund houses resorted to tactics such as selling RGESS as an equity scheme to non-first time investors, said sources.
One of the reasons for the dismal response to the NFOs was the delay in the final notifications from the government. ?By the time the final approvals came in, most investors had already done their tax planning and it was difficult to garner money in the month of March,? said Ajit Menon, executive VP & head ? sales, DSP BlackRock Investment Managers.
Identifying first-time investors and getting customers to open demat accounts were the other major hurdles. ?A lot of documents have to be submitted to the depositories by way of annexures and proofs, and a lot of investors required handholding to complete all the formalities,? said Bose.
According to Debasish Mallick, MD and CEO, IDBI Asset Management, the distribution community is not quite attuned to getting applications through the depository accounts, which was problematic as well. ?Distributors are not comfortable doing two separate KYCs and in-person verifications, which may be necessary for several first-time investors,? said Mallick.
According to experts, a depository participant typically takes 2-3 weeks for opening an account. Considering that that the NFO period was restricted to just 30 days, fund houses were hard pressed to ensure all the account-opening applications got processed in time. DP charges of anywhere between R150 and R300 per annum also deterred some investors.
Industry observers believe the scheme may not do well in the next fiscal as well, unless steps are taken to address the underlying concerns. Making the documentation process easier, raising the investment limit to R25 lakh and making the entire investment amount exempt from tax are some of the measures that might make the scheme more attractive to investors, they said.
Earlier this month, the MF industry had expressed its disappointment that the Budget had made no mention of allowing open-ended schemes under the RGESS platform. It was also felt that the hike in the investment limit from R10 lakh to R12 lakh was inadequate and would not help widen the investor base significantly.
The dismal inflows in the RGESS schemes does not augur well for an industry that has been grappling with outflows in equity schemes. Equity MF schemes have seen outflows for the past nine months, totalling about R13,500 crore, data from Amfi shows. Equity schemes had seen outflows of R14,148 crore in 2012 compared with inflows of R6,848 crore in 2011.
According to experts, several investors used the rally from September to December last year to cut losses or book small profits and exit the market. Indian equities gained over 25% in the calendar year 2012 and rose over 11% between September and December.