Mutual fund industry is
celebrating touching 15 lakhs crore of assets under management. There is no
reason to cherish but the industry should introspect why they haven’t done well
even they are best in the country. Actually they are far behind banking and
insurance industry. The growth and penetration of the mutual fund is limited to
some cities and even today many cities may not know what mutual fund is.
I firmly believe MF
investment is the best compared to all other investment products available in
India. I always advocate and only recommend
mutual fund investment to my clients. Mutual fund industry is well regulated
and it is very transparent. It does not provide only diversification and but also
it is tax friendly. Sometime I surprise that why they are well behind banks and
insurance industry, but when I look at the way they are operating I think in
next decade also they will remain in the third position. I will not be
surprised even PFRDA will beat the MF industry.
I am in the industry
since last many years and summaries following areas which I think needs to be
addressed so that people at large can take benefit of mutual fund
investment.
No
ARN training:
There is no serious effort
to recruit the new blood in the system. It is surprising that none of the AMC
offer ARN training for freshers. The
strength of the insurance agents is around 25 lakhs and there is serious
attempt to add the fresh blood every month. MF has only 80,000 ARN holders. Relying
too much on direct plans and technology will not help grow them as fast as
insurance and banking industry.
1
RM for 100 IFAs:
This is another area of
concern where you have only one relationship manager for 100-150 IFAs. How he
can handle and give justice to all distributors is a big question. Crores of
rupees are spent on the TV and print media ad but if they increase the number.
of relationship managers I think they can increase the productivity from the
existing force itself. Sometimes IFAs get disconnected as there is no support available
to them. Getting in touch of them and giving them periodic update can also
increase the activity.
Fewer
branches:
Forget about LIC even private
life insurers have around 200 -300 branches across India whereas MF houses have
only 10% of that. It is important to note that banks have also increased their
strength in all suburbs and tier II cities. People want visibility. This is the
major reason why insurance products are sold easily compared to MF products.
The support of Cams and Karvy is good for the distributors but the investors
need they can contact the branch if anything is urgent or there is nobody to
service them.
Low
Commission:
If insurance agent logs
in premium of Rs. 1 lakh he will get commission of Rs. 35,000 whereas MF
distributor will get maximum Rs. 1,000. SEBI, Fund houses should know that
unless IFAs are paid enough to survive it will be difficult for them to stay in
the industry. This can also be hurdle to increase the number of IFAs. It is
important to note that many IFAs have moved to insurance industry post the
entry load is abolished. In any profession it is necessary that intermediary earns
decent income as they directly interact with the end customer. Already commissions are low and further
reduction in expense ratio can hurt the growth of the industry.
Frequent
Changes in procedure:
We have seen many
changes in the forms, KYC procedures in the MF in recent past. The latest Fatca
and NACH have also disturbed the distributors. There are reports that there are
some problems with NACH with few PSU banks. The form filling is also a hurdle
for the investment. SEBI should promote the MF Utility platform so that the it’s
become easy to invest across all the MFs with single form. It will not only
reduce the paperwork but also will save cost in a big way.
Too
many schemes:
MF has more than 5000 schemes
and still we see flow of new NFOs in the market. It will be difficult not only
for IFAs but also for investor to choose the correct one. We have average 2-3 schemes
in each category in each fund houses. The flow of new NFOs in the same category
when the market is at a peak also confuses to the investors. SEBI should
seriously try to reduce the number of schemes so that IFAs also can give
quality advice and convince the client to invest.
Non
Performing Schemes:
SEBI puts so many
restrictions on the IFAs and introduce more disclosure but is still silent on
non performing schemes. There are many schemes in the mutual fund that do not
beat bench mark for very long period of time. In many schemes principal is
down. The bad experience in these
schemes also keeps investors away from the industry and also they spread negativity
among the other persons.
Just like insurance
industry, MF business is also number game. You have to reach to masses.
I hope stake holders
will take some serious steps to reach to the people without any further delay. SEBI
should also stop unnecessary intervenes and changing guard every quarter. I
urge Finance ministry to look into the matter and give a separate regulator for
mutual fund industry.
This article first appeared at indianotes.com on 19th August'2016
http://www.indianotes.com/Analysis/Why-MF-Industry-is-not-growing-at-faster-pace/203451/2/T
