The incentive to earn more on investment flows from beyond the defined top-15 cities is drawing fund houses to expand their reach
14-Nov-2013 •Research Desk
The Indian mutual fund industry has been witnessing interesting times. The economic gloom is reflected in the quality of assets managed by the industry. Debt continues to rule the roost with corporate money dominating. The impact of regulatory changes initiated last year are coming into effect and posing challenges to established AMCs and at the same time encouraging several smaller fund houses to explore newer ways to address the business.
On January 1, all AMCs launched direct plans in their existing schemes to pave way for investors to invest directly in mutual fund schemes. On July 1, the much awaited product labelling came into effect which resulted in all mutual fund schemes following the colour code. So, a high risk scheme followed brown colour, medium risk followed yellow and blue was assigned for low risk schemes.
At various forums, Sebi chief U K Sinha voiced the need for simplifying product offerings and optimising fund offerings by AMCs. The industry took note of it and was somewhat supported by the Union Budget announcement which drastically cut the securities transaction Tax (STT) on redemption of mutual funds from 0.25 per cent to just 0.001 per cent from June 1, 2013. This paved the way for several funds to merge, which was followed by several AMCs immediately.
With the regulator spelling out the pressing need for investor education and awareness to expand the reach of mutual funds, AMCs have realised the need to spend on investor education initiatives. Sebi has directed AMCs to annually set aside at least two basis points on daily net assets within the maximum limit of total expense ratio ('TER') for investor education and awareness initiatives.
The overall trend this year indicates continued decline in performance of equity funds. Further, the belief that debt funds are safe was shaken in June this year amid mass exodus by FIIs in debt, leading to redemption pressures. The impact of the June exodus was such that returns across debt fund categories turned red including income and short term funds. On the product front, finally international funds as a category are emerging strong. There are several funds to choose from and may offer distinct investment themes which are compelling to consider diversifying globally.
In an annual review on fund families, we spoke to mutual fund honchos to get their views on some of the pressing issues facing the industry, their investor education initiatives, the impact of direct plans and what they were planning to do in the coming year. The consensus amongst the CEOs we spoke to is that the business is under stress and unless the economy improves, improving fund performance will be a challenge.
The state of the industry poses its share of challenges and opportunities depending on how one looks at it. For investors, what matters most is to keep faith, invest in a good fund and continue investing.
Watch this space to read what the industry leaders had to say about the coming year.
This story first appeared in the 11th Anniversary issue of Mutual Fund Insight