Why Should Insurance Be Sold Differently From Mutual Funds?

A.P. Kurian is a name synonymous with mutual funds in India. The chairman of AMFI, who will step down this September, feels investor education is still an unfinished agenda.

A.P. Kurian
Title: Chairman of Association of Mutual Funds in India (AMFI)
Age: 77
Career: After being the executive trustee with UTI he took official charge of AMFI in 1998
Education: MA in Economics, Kerala University
Interests: Walking, listening to old Hindi and Malyalam songs, involved in social activities

What have been your biggest achievements at the Association of Mutual Funds in India (AMFI)?
There are many that I can think of. AMFI was able to get in world class standards for Indian mutual funds. We were able to bring in a lot of transparency to the industry. Earlier portfolio disclosures were irregular or given on a six-monthly or annual basis. Today mutual funds disclose portfolios on a monthly basis. Then we started the AMFI certification which was later on notified by Securities and Exchange Board of India (SEBI) in the year 1999-2000. The distributor community was asked to take this test to become AMFI-certified. Till now four lakh people have taken this test and half have passed. And I think we are one of the very few countries where mutual fund net asset value (NAV) can be provided on a single platform. In most countries you will have to call the mutual fund individually.

Investors will now have to give two cheques to the financial advisor when they buy funds - One for investment and the other for advisory. How do you look at this situation?
We have a completely different view. In order to make commission transparent, we suggested an open architecture. While filling the form, the investor can make it clear how much should be passed on to the distributor or advisor and write in the broker code on the form. This way, there is no need to write another cheque. Our suggestion did not work well with SEBI.

What is your view on the way unit linked insurance policies (ULIPs) are sold in the country?
I think whatever standards they are using to sell mutual funds should be applied to all the products. Why should post office schemes, fixed deposit schemes or for that matter insurance products be sold differently than mutual funds? Every financial product in the country should be subjected to the same standards and regulations. It should become a system acceptable to the entire community. But I’m optimistic. The level playing field will come in some time.

What is your analysis of the Indian investor?
The Indian investor has become conscious. Over the years, in my observation, his level of understanding [of] complex financial products has gone up. Earlier the guy used to invest into fixed deposit schemes and post office schemes. But today he is moving to slightly risky investments. We have around 48 million mutual fund accounts. If we remove the double counting, we get 30 million individual accounts for mutual funds. This number has to go up.

Is there anything that you left incomplete?
The biggest challenge for mutual funds is investor education. This I think is work in progress. We need to educate the Indian investor to understand financial products. Making people aware about
these products is the biggest challenge.

Source: http://business.in.com/interview/exit-interview/why-should-insurance-be-sold-differently-from-mutual-funds/10912/1

MFs forced to sell shares as inflows dry up

For nearly six months now, Indian mutual funds have been selling more shares than they have been buying, as they grapple with weak inflows into their schemes.

This is in stark contrast to peers like foreign institutional investors (FIIs) and local insurance firms, which have been net buyers during this period. Mutual fund watchers say unless the distribution issues are sorted out and retail investor confidence improves, inflows are unlikely to improve anytime soon.

Cash levels in most equity schemes — diversified as well as sectoral —have come down sharply to 3-4%. This leaves fund managers with little money to deploy in case the market corrects sharply.

According to SEBI data, mutual funds have net-sold around Rs 12,000 crore worth of shares between last September and now. In 2010 alone, local fund houses have dumped Rs 2,107 crore worth of shares at the net level.

Investments into mutual fund schemes have been impacted by market regulator Sebi’s decision in August last year, to abolish entry load. This has led to distributors pushing other products to investors, on which they stand to earn a higher commission.

However, fund managers are of the view that regulatory changes only served to aggravate an already underlying bearish sentiment.

"Sharp swings in the stock market over the past six months have also made investors hesitant about investing at higher levels," says A Balasubramaniam, CEO, Birla Sunlife Mutual Fund.

"Also, many investors have been liquidating a part of their mutual fund holdings to subscribe to public issues. However, we are seeing good inflows whenever there is a sharp correction (in the market)," he told ET.

Nandkumar Surti, CIO, JP Morgan AMC, is of the view that participation in equity schemes is at an all-time low and this is primarily because investor confidence is still not back to the same levels as it was in early 2008.

"The global economy went through its worst phase in 2008, thereby raising a lot of questions on sustainability of the recovery. As such when the market rebounded last year, you saw investors looking to exit at every level or even preferring a marginal exposure to equity," he said.

Fund managers believe that while the pick-up in growth this year is a positive signal, it will be some time before pure equity schemes are back in favour. “For the next 3-6 months, investors will be looking at monthly income plan (MIPs), balanced funds, or structured products. One could see investor confidence return by FY11 or the latter half of 2010," feels Mr Surti.

Even as mutual funds saw their market share erode marginally on continued outflows, insurance companies have been steadily upping their equity exposure.

"Domestic funds have yet to recover from regulatory changes in August, and remained sellers in the past quarter. At $62 billion, the insurance portfolio is now 28% larger than the mutual fund portfolio (both across equities). The January-March quarter is usually the strongest for insurance companies. And we would expect their market share to rise further, going forward," say equity strategists Aditya Narain and Tirthankar Patnaik of Citigroup Global Markets in their India equity strategy report.

"We have seen some amount of pick-up in interest in February and if there are no unpleasant global triggers, things can only improve," said a fund manager optimistically.

Source: http://economictimes.indiatimes.com/MFs-forced-to-sell-shares-as-inflows-dry-up/articleshow/5655825.cms