Fund houses will have to tap non-metro markets to grow

As per the country head of Bharti AXA, Vikaas M Sachdeva, stock exchanges are a good alternate distribution models for mutual funds. He also says that mobile phone technology will turn out to be a decent distribution avenue going forward. In an interview to FE’s Saikat Neogi, he said by simplifying the communication and conversion process, a higher retail penetration in MFs can take place. Excerpts:

Do you think a retail consumer is really aware of all the charges that he pays to buy and keep mutual funds?

Information about costs of investing in mutual funds is widely available through various sources like Websites, distributors and online platforms. The Scheme Information document provides every detail with respect to the fund and the costs of running it. Most of the investors today have a fair idea about the cost structure in mutual funds, particularly in larger centres. However, their decision to invest is seldom based on the cost structure of the funds.

How do you think the online platform will help fund houses to reduce costs and benefit investors in the long run?

Online platforms are technology driven and hence the cost of servicing, operations and manpower would go down significantly in the long run. This would mainly service the “Do-it-yourself” customer who compares and invests on the basis of information available on the internet. While the online platforms offer many positives like ease of access, availability, transaction convenience and availability of data at the click of a button, the ‘do-it-yourself’ concept may not go well with retail investors. As behavioural finance states that for an investment purchase decision to be made, the average person requires the ‘reassurance’ of an influencer. The role that the platform can play as an influencer is limited. Hence, the quality of investment advice and financial planning a distributor brings to the table might not be present in this avenue.

What are the other alternative distribution models fund houses should be looking at after the ban on entry load?

Of late, stock exchanges are an alternate distribution models, apart from the online/offline models available currently. It is possible for potential investors to buy into a mutual fund at the prevailing NAV by just calling his stock broker or on the online platform. Although spoken about quite frequently, mobile phone technology has not become as fast or as user friendly as one would like it to be, but this is something which will turn out to be a decent distribution avenue going forward. But these technologies and their acceptance along with acceptance of mutual fund as an investment vehicle is a time consuming activity. Having said this, the flip side is also true. It is imperative for the distributor to continuously look favourably at mutual funds as an investment vehicle. We are still not at the tipping point in this country that there is a mass conversion into mutual funds because of brand pull, financial literacy or sheer convenience and hence, a sizeable dependence is still on the distributor.

Do you think there should be a standardisation of products and the number of schemes should come down so that an investor does not get baffled?

The key word is “simplification” rather than standardisation of products. By simplifying the communication and the conversion process, a higher retail penetration is perceived. Standardisation of the products might not be the best solution as it would result in stifling innovation. Since most of the investments for funds houses come from metros, how can fund houses tap the other markets to grow their asset under management. Traditionally, India is a high ‘saving’ nation. Private savings potential as given in the Morgan Stanley research is over 23%, although most of the money comes from the top 10-12 markets. However, a per our internal calculations, mutual fund penetration is hovering at around 5% mark. Even the seemingly large numbers that seem to be coming in from the top cities doesn’t match with the potential that the industry can absorb. MF penetration has to grow manifold for the industry to achieve higher reach. With respect to the other markets, the informed investor will still be able to invest through many sources like online platforms, but investing as a habit is not inculcated in the average Indian yet. It requires a large force to reach out to the hinterlands and hence the requirement of the financial advisor gets significant.

Source: http://www.indianexpress.com/news/fund-houses-will-have-to-tap-nonmetro-markets-to-grow/676902/0

Online applications to help mutual funds meet new NFO timeframes

The mutual fund (MF) industry, which has to deal with reduced timeframe for launch of new fund offers (NFOs) and allotments of units, is getting help from companies, registration and share transfer agents to meet the deadline smoothly.

In a first effort, after Securities and Exchange Board of India (SEBI), reduced the launch period for MFs to 15 days and the timeframe for allotment of units to five days, a technology to help funds comply with the norms has been launched.

Computer Age Management Services (CAMS), the registrar and transfer agent, has designed an offering whereby investors or distributors on their behalf can apply online during the NFO period.

This will shrink the time needed for CAMS to allot units to 1-5 days.
“This will be through its website and will be available
to subscribers and distributors of MFs,” a source told DNA. The firm is learnt to have made presentations to various asset managers, which are keen on the offering.

Explaining the product, the source said, “On the www.camsonline.com website, existing fund holders can put in their folio number and some of the details such name, address, numbers would be automatically filled in. For new customers they will have to fill up details, but still there is help in filling as when you write `10,000 in application, the amount in words is
automatically filled in.”

Upon filling the application online, one has to take prints and submit it at locations, which can be CAMS offices, asset managers and participating banks. The list of closest locations would be known while applying online. “As the time period is now reduced to five days the processing can be on a T+1 cycle (one day) after submission of physical documents,” the source said.

At present, fund houses collect physical applications from investors, send it to CAMS office in Chennai in the physical form and then process it to finally make the allotment. The online procedure will directly supply the information the same day to the Chennai back office and await the physical submission of forms.

The product shall be of use more in case of equity MFs than debt as the number of investors applying for debt MF NFOs may be in thousands, but in equity it is in lakhs due to high retail participation.

A MF official said, “We can manage with pre-NFO activities in the 15-day deadline set by SEBI from August 1, 2010. But processing of applications and allotting of units in five days was a task. People usually apply towards the end of the NFO period and then there is a lot of burden to handle. This should help us fix it.”

“However, the know-your-customer (KYC) verification wherein the identity of the person is to be verified before accepting a MF application will have to be completed either before or during applying online. You can subsequently do your KYC as well,” the source said.

Source: http://www.dnaindia.com/money/report_online-applications-to-help-mutual-funds-meet-new-nfo-timeframes_1433923

DTC will have ‘no impact on the market' : CEO, Motilal Oswal AMC Ltd

Most participants had expected long-term capital gains tax to remain at zero: Motilal Oswal.

In India, equity as a percentage of financial savings stands at just 3 per cent today. This number has nowhere else to go but up. Mr Nitin Rakesh, MD and CEO, Motilal Oswal AMC Ltd

The roller-coaster ride the markets had since the new Direct Taxes Code (DTC) was introduced in Parliament could have unnerved some tepid investors. But for the long-term market buffs, the DTC comes with a load of goodies and for the retail investors, stock market investment should now come as a means of wealth generation.

True, the proposal to levy a 5 per cent tax on dividend payout that comes on the top of the SEBI diktat on dividend being paid out of the realised gains, and not from unit premium reserve, may come as a dampener to some of the investors looking for MF dividend as a dependable income stream, particularly in retirement. But this has been off-set by the proposal to exempt equity and equity-based MF units from long term capital gains tax.

With the Indian economic growth story intact, equity should form part of any retirement planning and regular investment in MFs would help in building a sizeable retirement corpus.

In an interview to Business Line, Mr Nitin Rakesh, Managing Director and Chief Executive Officer, Motilal Oswal AMC Ltd, Mumbai, shares his thoughts on the impact of DTC on mutual fund investments. Excerpts:

The latest tax code retains the long-term capital gains tax exemption on investment in equity and equity-related funds. Will that not be a huge relief to the investors? The continuance of long-term capital gains tax exemption has come as a relief. There is no impact on the market as most participants had expected the long-term capital gains tax to remain at zero.

The code proposes levy of 5 per cent tax on income distributed by equity-oriented MFs. Will this make mutual funds less inclined to distribute dividend, particularly as SEBI has mandated that the dividend should be paid out of profit made?

No, I don't think that would make a big difference as to alter a MF decision to declare dividends. There would be different schemes, and reinvestment option or growth option ‘would be much more popular' than dividend option.

Do you feel that in view of the tax changes, the growth option would score over dividend option in so far as MF investment is concerned? Which will be more tax efficient in the long term?

Yes and the growth option would be more tax efficient in the long term.

What is the likely impact of the removal of ELSS from the investments eligible for tax deduction? Do you expect the MFs to phase out these funds post -2012?

I don't think it will get phased out in FY12. People will start getting used to EET instead of EEE.

Don't you think that equity investment — direct or through MFs — should become an essential long-term investment strategy?

Markets don't have daily movements based on long-term view. They are guided more by sentiments. In India, equity as a percentage of financial savings stands at just 3 per cent today. This number has nowhere else to go but up. Direct equity investments, mutual funds and ULIPs would all be responsible in taking this number higher.

Source: http://www.thehindubusinessline.com/2010/09/06/stories/2010090650910400.htm