Why MFs are nobody’s favourite

For starters: Only 33.21 per cent of housholds owning some kind of capital market instruments would consider going for a mutual fund scheme.

In a striking contrast, 81.74 per cent of such households would invest in stock markets directly, 10.95 per cent in infrastructure or tax-saving bonds and 48-odd per cent in PSU or non-government bonds and debentures (the survey accounts for multiple responses).

The recent survey, which IEPF commissioned to gauge investor preferences has not been released to public yet.

The report highlights every aspect of the mutual fund industry that had Sebi Chief Damodaran and FM officials crying foul on Wednesday. Data compiled by AMFI shows that the mutual fund industry has shifted its focus towards corporates and high net worth individuals and away from retail investors.

The IEPF report says, ‘‘The reduced relative importance of retail business in the total mutual fund business is explainable partly by the retail investors’ disenchantment with MF products and partly by business compulsions of mutual funds.’’

‘‘As high as 66.5 per cent of sample households (from a total 5,908) were likely to make a net addition to their equity holdings. But only 40.9 per cent were interested in increasing their mutual fund portfolio,’’ it says.

As a result, over the next year, the present structure of investments is unlikely to drastically alter.

Reason for the fading interest, the report highlights include unhappy experiences in the past. ‘‘Investors relied on the…. promises in offer documents. In many cases, the promises could not be honoured. In some cases, the sponsor bank had to bail out the fund and in others, the investors had to grin and bear the loss.’’

Besides, investors were discouraged by ‘‘nasty surprises’’ since the mid-1990s due to managerial incompetece, malpractice and fraud. The third aspect, it says, is that ‘‘many mutual fund managers trade too much.’’

Also, retail investors are not familiar enough with mutual funds, a factor that affects investment decisions. ‘‘There is much more unfamiliarity with mutual funds than with the share market among retail investors,’’ the study says, pointing out that 40 to 50 per cent respondents did not intend net additions in MF equity and income schemes.

In suggesting ways out, the household survey says that a majority of mutual funds have not demonstrated ‘‘a really superior investment strategy, not attainable by intelligent investors.’’