The Securities and Exchange Board of India (Sebi) is looking into the business model of the mutual fund industry. “The mutual fund industry hasn’t penetrated much into the retail space. Therefore the regulator is looking at its business model,” a source in the finance ministry told The Indian Express. Sebi is also analysing some specific aspects such as the spread of business of the asset management companies and their consistency in income.
The mutual fund industry was opened up for private sector in 1993. After 16 years of operation, only 4 per cent of the household savings have found their way into investments in mutual funds. The industry is concentrated largely with big-ticket institutional investors and doesn’t offer much incentive to the retail players. Currently, almost 70 per cent assets under management belong to the institutional investors. “Mutual funds have become treasury tool for the institutional investors. A lot of retail investors lost money because of institutional dumping. Huge redemptions by institutional investors have reduced the net asset value of various funds, and in turn caused losses to retail investors,” said Sanjoy Banerjee, executive director at icraonlie.com.
The mutual fund industry was opened up for private sector in 1993. After 16 years of operation, only 4 per cent of the household savings have found their way into investments in mutual funds. The industry is concentrated largely with big-ticket institutional investors and doesn’t offer much incentive to the retail players. Currently, almost 70 per cent assets under management belong to the institutional investors. “Mutual funds have become treasury tool for the institutional investors. A lot of retail investors lost money because of institutional dumping. Huge redemptions by institutional investors have reduced the net asset value of various funds, and in turn caused losses to retail investors,” said Sanjoy Banerjee, executive director at icraonlie.com.
While retail investors are charged both for entry and exit, the high net worth individual (HNI) investors are allowed load-free entry and exits. Although Sebi has allowed load-free entry to retail investors in case of direct applications, this hasn’t encouraged retail investors much. “The retail and institutional mix is unfair for retail investors. Tax arbitrage offered by mutual funds has attracted a lot of HNIs and institutional investors. Once this tax advantage is scrapped, mutual funds will be forced to go retail,” said Dhirendra Kumar, CEO, Valueresearch.
Besides, the seasonality of business is also a concern. “Mutual funds are not considered as an all-weather investment by many. When equity markets are up, people usually flock towards mutual fund schemes and when they are down, people withdraw money,” said Kumar.
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