Retail takes a time-out

Dhirendra Kumar,CEO,Value Research,said,Of course,we have seen the change in the business dynamics due to Sebis entry load abolition. For last 3-4 months,we have been observing massive profit booking by the investors who walk away with some other better options in hand. Also,the liquidity condition in the MF industry has been tight during the period throughout the last 12 months. The distributors also play a role in the  redemption as there is a slow sale of market-driven mutual fund products.

Experts say there are multiple reasons behind the redemption issue. First,with the scrapping of entry load by the SEBI,there could be lack of servicing to investors. Hence there is de-growth in fresh inflows. Second,investors whose wealth had depreciated big time in the global meltdown,now getting an opportunity to exit are availing of the same. And lastly,financial advisors could be moving investors to other investment vehicles like insurance companies or PMS,thus resulting into net outflows, said Nirmal Rungta,business head PCG and Retail,AK Stockmart Ltd.

According to the data provided by Amfi,average assets under management of the fund industry stood at over Rs 6.65 lakh crore,down by 3.2 per cent in July against Rs 6.75 lakh crore in July end of 2009. Equity schemes witnessed a net outflow of around Rs 3,400 crore in July,the highest in the last 12 months. Today,investors are wary of making lump-sum investments. In the month of July,despite equity market growth by 2 per cent,equity schemes witnessed net redemption in the same month. The mutual fund industry on an overall basis witnessed inflows of over Rs 31,600 crore with most money flowing into money market schemes, said Sundeep Sikka,CEO of Reliance Mutual Fund.

Vikaas M Sachdeva,country head business development,Bharti Axa Investment Managers said,The reason of the huge redemption is profit booking by the investors,especially at the retail level. What I feel is that a sizeable amount has gone to MIP monthly income plans and portfolio management schemes. This has happened after the Sebi move to ban entry load last year and the lack of interest on the part of distributors in pushing MF products. Seeing the writing on the wall,mutual funds were also not showing much interest in launching new fund offerings NFOs.

Theres no dearth of options in mutual fund investments with hundreds of schemes available for investors. This cant be the reason for the lacklustre show of mutual funds. Asked if the MF industry is lagging behind in offering attractive products to their investors,Rungta said,Not at all. The product basket and the available options are so big that making a choice could be difficult for investors.

Mutual fund managers claim that alls well in the sector. They say almost all new players who entered the market in the last six months time,are working on innovations and development of their new schemes 8212; like daily SIPs Systematic Investment Plans. It is encouraging to find that SIP investments are continuing even in this volatile market, said Sachdeva.

On the road ahead,experts are hopeful but not sure about any significant improvement in the near future. Its too early to speculate on the industry. At present,what I feel is that the cause of huge redemption in the mutual fund industry could be due to 3-G auction outflow. For last 4-5 months we have been observing that this industry,including the banking sector,is passing through a negative trend on the growth front, said a fund manager.

According to one school of thought,there would be some pressure on the industry for another year or so. Beyond doubt,only investors participation in huge numbers can bring the industry back on the track. Theres no reason why investors should not  return to the mutual fund route as the economy is doing well and the corporate sector is dishing out good numbers quarter after quarter. Although there is a negative growth,we see a very bright prospect for the sector as huge participation from the retail investors is expected,especially in medium and long-term investment plans in any MF company. As much as 5-10 per cent money flow to the market comes through the MF sector only, he said.

In the short term,the entire issue boils down to commissions. Sebi had banned entry load for all schemes from August 1,2009. However,it allowed fund houses to use 1 per cent of the exit load for marketing and distribution costs. Sebi had also asked distributors to declare their commission from the scheme that they were selling as well as from similar schemes to investors.

As Dhirendra Kumar said,If the industry offers better commissions to the distributors,the industry will see a growth trend in the future. But Sebi has ruled out the possibility of taking a relook at the entry load ban. This means the industry will have to learn to live and grow with the ban.

Madhusudan Sahooexpressindia.com