Fee sops fail to boost MF sales via exchanges

The National Stock Exchange (NSE) recently extended the existing fee waiver on mutual-fund transactions till March 31 next year to encourage more buying and selling of schemes through its platform. But, asset management industry officials and brokers remain sceptical about the potency of such steps to drive this platform, where investors can buy and sell schemes just like shares, as an alternative investment route for mutual fund investments.

“The fee waiver is a very small step. For this platform to be a success, it requires greater efforts from mutual funds and brokers to consider it as the the most sought-after route,” the head of a Mumbai-based brokerage’s wealth management arm. “Even today, mutual funds continue to keep distributors in good humour to sell their schemes rather than find an alternative plan,” he added.

The platforms were introduced by stock exchanges in December after distributors stopped selling most mutual fund schemes following the Sebi’s step to ban AMCs from using investors’ money to pay distributors.

Over seven months after its launch, the activity on NSE’s platform for mutual funds is yet to pick up. In June, 832 orders worth around Rs 5.8 crore were placed through NSE’s platform compared with 1,079 contracts worth Rs 4.47 crore in December. The activity on BSE’s platform has seen a slight spurt in July, with around 1,860 orders worth Rs 16.7 crore so far this month. In June, 884 orders worth Rs 15 crore were carried out on the BSE, compared with 739 contracts valued at around Rs 18.5 crore in December. The mutual fund industry saw redemptions worth Rs 1,19,449 crore in June.

“There is a huge scope for this platform. But for that, mutual funds need to approach brokers instead of just focussing on distributors,” said Sanjiv Shah, executive director, Benchmark Asset Management, which mostly offers ETFs that can only be bought and sold on exchanges through stock brokers.

Though brokers publicly maintain there is scope for selling mutual fund products, most of them, in private, are less enthusiastic. This is because brokers earn a majority of their revenues from regular trading of stocks by clients, while mutual funds schemes cannot be bought or sold in the same manner as shares. Due to lack of clarity about revenues from this business in the foreseeable future, most brokers are unwilling to invest in a big way to service mutual fund trades.

Retail investors also do not have any incentive to choose stock brokers over distributors at this juncture. This is because buying or selling mutual funds through stock exchanges requires opening a demat account and many mutual fund investors do not have one. Also, there is no cost advantage for investors who purchase mutual funds schemes in smaller numbers, mutual fund officials said.

But, some in the industry are a lot more optimistic about the platform’s prospects. “There will be a tipping point sometime, but I don’t know when... maybe a couple of years later or even sooner,” said Benchmark’s Shah.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Fee-sops-fail-to-boost-MF-sales-via-exchanges/articleshow/6164925.cms

SEBI plans a standard set of disclosure norms for MFs

The Securities and Exchange Board of India (Sebi) is planning a standard set of disclosures for mutual fund fact sheets, advertisements and scheme information documents (SID), a person familiar with the matter told ET. This will not only give a clearer picture about the performance of the schemes, but will also help investors compare similar schemes of different fund houses.

The regulator is aiming at more of quantitative disclosures, and not just qualitative disclosures as is the case at present.

For instance, take returns. The thinking within Sebi is that returns alone do not define performance. A scheme may generate high returns by taking more risks, but this may not be palatable to the conservative investors in that scheme. Once the risks taken by fund managers are quantified, investors can compare the performance of various schemes before deciding on the one that suits their temperament.

Around three years ago, the Association of Mutual Funds in India (Amfi) had issued a standard format for fact sheets. But many fund houses do not adhere to that.

One of the shortcomings of that format was that it left the definition of certain parameters to the discretion of fund houses. As a result, the performance of a scheme cannot be compared with that of its peer group.

For example, certain funds disclose the volatility on a monthly basis, while other funds disclose the annualised volatility. The funds do not disclose the risk-free rate they have taken as the standard while calculating the Sharpe ratio — the measure of risk-adjusted returns. Many funds do not disclose portfolio turnover, which tells an investor how often the fund manager churns his holdings.

Sebi has proposed certain quantitative parameters to assess the performance of various types of schemes. For instance, in case of equity schemes, fund returns will have to be mentioned on an annualised basis after accounting for short-term capital gains tax and the dividend paid out during that period. Further, funds should also calculate volatility as the annualised standard deviation of the weekly returns over the concerned period.

Similarly, the recurring expenses being charged by the scheme are also important for the investor as most funds in their SID only disclose the maximum expenses they would charge. These generally comprise the outer limit and do not reflect the actual expenses being charged. Similarly, in debt schemes, the fund must reveal the short-term and long-term risk-free rates to help the investor assess whether the fund manager has actually attained higher returns

for them.

Sebi also wants the mutual funds to give advertisements that give a holistic view of the performance of asset management companies (AMCs). The fund houses will have to publish advertisements that have specific quantitative parameters apart from just the scheme and benchmark returns.

“Most of the AMCs were advertising only the list of their best-performing schemes, while there is no mention of those schemes which are either faring poorly or giving average returns,” said a person familiar with the regulator’s proposals.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/SEBI-plans-a-standard-set-of-disclosure-norms-for-MFs/articleshow/6164921.cms