The mutual fund industry has been under pressure over the last one year after market regulator Sebi tightened rules to curb misselling by distributors. Distributors now have to directly negotiate the initial commission with investors. Naval Bir Kumar,president and CEO, IDFC Mutual Fund , says the industry is attempting to cope with the changes in the Sebi norms . But margins, he points out, have dropped and there is aneed to raise productivity.
The tightening on the operational fronts like risk management and disclosure norms was long awaited, Kumar says. "The last one year has been one of transition for the asset management industry and all stakeholders connected with it. The industry is still in the throes of this transition. Over a period of time, however, one would expect the industry to respond with simple, yet innovative products, improved customer service and more productive channels of distribution. With changes coming in all financial products, one would expect more congruence in the way to approach investors, he says.
“We can embrace these changes for the retail market only if we create products whose returns are much less volatile and have the flavour of a fixed deposit. Hence, we have been focusing on capital protection funds, asset allocation funds and other hybrid funds such as monthly income funds (MIPs). We are also increasing the range of products for high networth individuals (HNIs) and launching alternative assets class such as private equity funds to attract HNIs.”
Mutual funds complement, and not compete with, other investment avenues like insurance products. It is probably the only product that has all the advantages of tax benefits, liquidity, returns and transparency, he says.
According to him, so far, most investors based their decisions on short-term goals and the industry, on its part, launched several new fund offers in overheated markets. In a market where the industry was thriving on NFO game, products were launched to suit the flavour of the month and distributors’ interest. Kumar reckons that somewhere along the way, an NFO became the primary medium to raise assets than conventional sales and it spawned an entire machinery to that effect. The focus currently is on building performance and assets in the ongoing schemes. Distributors, clients, media and AMCs have all aligned towards that goal.
Another target group, according to him, is retail investors in Tier-II cities. In developed countries, retail investors enter the markets mostly through pension and insurance funds. However, in India, they usually invest directly. “So far, equity has become a product where investors pour money only at the peak and by that time, there is a correction. To overcome these issues, the industry launched the systematic investment plan (SIP). The product is yet to take off in a big way. For the retail investor, bank deposits continue to be the most preferred saving instrument. The trend is, however, changing and investors are looking at MFs as an alternative investment option now, he said.
The tightening on the operational fronts like risk management and disclosure norms was long awaited, Kumar says. "The last one year has been one of transition for the asset management industry and all stakeholders connected with it. The industry is still in the throes of this transition. Over a period of time, however, one would expect the industry to respond with simple, yet innovative products, improved customer service and more productive channels of distribution. With changes coming in all financial products, one would expect more congruence in the way to approach investors, he says.
“We can embrace these changes for the retail market only if we create products whose returns are much less volatile and have the flavour of a fixed deposit. Hence, we have been focusing on capital protection funds, asset allocation funds and other hybrid funds such as monthly income funds (MIPs). We are also increasing the range of products for high networth individuals (HNIs) and launching alternative assets class such as private equity funds to attract HNIs.”
Mutual funds complement, and not compete with, other investment avenues like insurance products. It is probably the only product that has all the advantages of tax benefits, liquidity, returns and transparency, he says.
According to him, so far, most investors based their decisions on short-term goals and the industry, on its part, launched several new fund offers in overheated markets. In a market where the industry was thriving on NFO game, products were launched to suit the flavour of the month and distributors’ interest. Kumar reckons that somewhere along the way, an NFO became the primary medium to raise assets than conventional sales and it spawned an entire machinery to that effect. The focus currently is on building performance and assets in the ongoing schemes. Distributors, clients, media and AMCs have all aligned towards that goal.
Another target group, according to him, is retail investors in Tier-II cities. In developed countries, retail investors enter the markets mostly through pension and insurance funds. However, in India, they usually invest directly. “So far, equity has become a product where investors pour money only at the peak and by that time, there is a correction. To overcome these issues, the industry launched the systematic investment plan (SIP). The product is yet to take off in a big way. For the retail investor, bank deposits continue to be the most preferred saving instrument. The trend is, however, changing and investors are looking at MFs as an alternative investment option now, he said.
With most retail investors continuing to stay away from the markets due to a sharp rise in a very short period, Kumar says that investors should be proactive in their decisions. "Money that retail investors save can help them earn more if they invest in instruments like MFs rather than in fixed deposits. So, investments are an important part of planning for the long term.”
"We need to bring investors back. There are various parts of business — one segment is corporate savings and other is HNIs. We are increasingly looking to target the HNI segment through innovative products like hybrid infrastructure schemes," he says.
Today, around 25% of the industry’s assets come from beyond the top 10 cities, up from 9% in 2003. This is expected to go up. India has been a best performing market globally in the past few quarters. “We have entered moderate interest rate scenario, though inflation continues to be a worry.” But there could be some pressure on interest rates as the private sector is getting aggressive in sectors like infrastructure.
Kumar, however, believes that the markets are overvalued. "India is attracting capital since Europe and the US are yet to come out of the woods. At the same time, low or negative growth in these countries is a risk to India. As of now, there are no worries about asset bubbles and earnings growth is seen stable even with the slowdown in the West."
Source: http://economictimes.indiatimes.com/opinion/comments--analysis/MF-sector-will-adapt-to-Sebi-norms/articleshow/6757321.cms?curpg=2
"We need to bring investors back. There are various parts of business — one segment is corporate savings and other is HNIs. We are increasingly looking to target the HNI segment through innovative products like hybrid infrastructure schemes," he says.
Today, around 25% of the industry’s assets come from beyond the top 10 cities, up from 9% in 2003. This is expected to go up. India has been a best performing market globally in the past few quarters. “We have entered moderate interest rate scenario, though inflation continues to be a worry.” But there could be some pressure on interest rates as the private sector is getting aggressive in sectors like infrastructure.
Kumar, however, believes that the markets are overvalued. "India is attracting capital since Europe and the US are yet to come out of the woods. At the same time, low or negative growth in these countries is a risk to India. As of now, there are no worries about asset bubbles and earnings growth is seen stable even with the slowdown in the West."
Source: http://economictimes.indiatimes.com/opinion/comments--analysis/MF-sector-will-adapt-to-Sebi-norms/articleshow/6757321.cms?curpg=2
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