The whiplash effect long feared by the mutual fund industry in the wake of the ban on entry loads looks to have manifested itself physically in the books/registers of the industry.
The ban on entry loads had made a most lucrative source of income for distributors out of bounds. Consequently, they stopped servicing small investors and that has had a cascading effect on the collections of the industry. According to a Mint report the number of mutual fund units bought by investors have fallen by as much as 40 per cent in August – the ban came into effect on August 1.
Investors, till now, were being charged up to 2.25 per cent of their investment in equity schemes in the form of entry load.
The absence of distributors is showing other results too as the number direct applications as a percentage of the total, that averaged 10.58 per cent between May and July, jumped to 16.54 per cent in August. However, the value of transactions has gone down from 11.03 per cent to 8.48 per cent.
The fall in numbers is being corroborated by Karvy Computershare and Deutsche Investor Services, plus Computer Age Management Services who together serve all the AMCs on tracking investor deals.
On the other hand, even though the number of units bought registered a drop, assets of the mutual fund industry have gone up by around four per cent to around Rs 7.5 trillion. But that is another story as most of the new money came from institutions and not retail investors.
There may be a positive in the whole issue in the form of investing patterns changing, with small investors increasingly buying units online or directly from mutual fund outlets, but that is not really going to comfort fund managers who had cited this very reason to speak against the ban.
While investors may be facing hardships in buying units, yet the long-term vision that SEBI is eyeing is still spot on – since the numbers are so huge (both in terms of people and money involved), the only way forward is to promote technological access, where human interface is at bare minimum while carrying out a transaction. Also, investor-friendliness and transparency are supreme and must be enforced.
However, market participants are of the view that a month is too short a period to say anything definitely and that we should wait for at least another two months before pronouncing the final verdict.
The irony in the theme is that, just when markets started going on to conquer new highs, the service for retail investors have been curbed.