MFs: Where are the investors?

There are just 10 mn MF investors compared to 60 mn homes with life insurance.

For an industry boasting 38 active players spread across 150 cities, with over Rs 6.7 lakh crore of average assets under management (AAUM) in June, mutual funds in this country have barely 10 million investors. Perhaps, even less.

The data till June-end available on the website of the Association for Mutual Funds in India (Amfi) showed the MF industry had almost 48 million folios. Amfi started publishing data of the number of folios with fund houses in November last year.

One folio is equivalent to investing in a single scheme. Industry experts admit most MF investors have at least four-five schemes, which translates into four-five folios per person. In many cases, this number is much more. In fact, there are customers with 100-150 schemes.

“The MF industry, as a whole, has been unable to convey the message to investors about its attractiveness,” said Rajeev Deep Bajaj, vice-chairman and managing director, Bajaj Capital, adding that the number of investors has stayed static for almost six months. Between November 2009 and June-end, the industry added only 70,503 folios.

If one looks at numbers from the Centre for Monitoring Indian Economy (CMIE), the number of MF investors is even lower. As on December 2009, CMIE’s Consumer Pyramids estimated that out of 235 million households, only two million invested in MFs. CMIE assumes one household has five members, but it’s unrealistic to assume all five would have invested in MFs.

In comparison, 87.66 million households invest in gold. The life insurance industry has 59.7 million households covered by insurance policies. Close to 46.06 million households have fixed deposits. Only 0.39 per cent, or 920,000, households directly invest in equities, according to CMIE.

Though there are 17 million demat accounts with NSDL and CDSL, only a handful seem active. Among the top five fund houses, UTI Mutual Fund, which has been there for over four decades, had slightly over 10 million folios, the highest. The other four are Reliance MF with 7.40 million; HDFC MF with 4.04 million; ICICI Prudential MF with 2.94 million; and Birla SunLife MF with 2.47 million folios.

Both distributors and fund houses are fighting to attract the same customer.

The good part is that though a large part of the money – almost 75 per cent – is in the debt segment, a bulk of retail folios are for equities and balanced funds – 43.56 million. This implies that investors are willing to put money in equities.

Hemant Rustagi, CEO, Wiseinvest Advisors, said, “There have been limitations, in terms of operations, lack of advisors in numbers and quality and phases of extreme volatility in stock markets. Still, the highest growth has been there in equities.” The lack of penetration is mainly due to the fact that MFs need to be pushed, aggressively sometimes. “Many investors still find MFs complex. There should be an industry association platform to promote them,” added Bajaj.

Though new players have entered the market, they have been not been able to add many new investors. Look at one new player, Axis Mutual Fund. In November, it had 491 folios in income/debt schemes. At present, the number of folios is 158,694. At the same time, the total number of folios between November and May rose by only 70,000 (from 47.87 million to 47.94 million). And, many other players gained folios as well. For example, HDFC Mutual Fund’s folios rose by almost 400,000 in the same period. Clearly, the same investor has multiple folios.

Source: http://www.business-standard.com/india/news/mfsareinvestors/402204/

Sebi wants mutual fund trustees to be more accountable

The Securities and Exchange Board of India (Sebi) wants trustees and independent directors to become more proactive in the functioning of fund houses and enhance their roles to ensure investor protection.

The market regulator aims to make trustees and independent directors of asset management companies (AMCs) familiar with the best practices and keep them updated with the technical know-how of the mutual fund (MF) business.

To achieve this, Sebi plans to conduct workshops for trustees and independent directors of AMCs, through National Institute of Securities Markets (NISM).

The first workshop, here on September 15, is to cover topics such as discharging fiduciary duties, insight into debt and money markets and reviewing fund performance beyond returns.

“This is a step towards making trustees more accountable in the functioning of AMCs,” said Aditya Agarwal, country head of Morningstar India, an MF tracking firm.

Sebi also wants trustees to have more involvement in reviewing the performance of MF schemes. In a recent event organised by Tamil Nadu Investors’ Association, K N Vaidyanathan, executive director of Sebi, who is in charge of MFs, had said trustees should question the variations in performance of similar types of MF schemes offered by a fund house.

“A lot of regulatory changes have come in the MF industry in the recent past. Sebi’s objective is to make trustees and independent directors more knowledgeable about the business,” said the managing director of an MF house. NISM will run at least three workshops every year, which will focus on technical subjects and the regulatory perspective.

Sebi norms require at least four trustees to supervise the functioning of an MF house and at least two-thirds of them need to be independent persons, not associated with the sponsors or the AMC. The general power of monitoring and directing an AMC is vested with the trustees, who have a fiduciary responsibility to investors.

Source: http://www.business-standard.com/india/news/sebi-wants-mutual-fund-trustees-to-be-more-accountable/402205/