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FM, SEBI to find out ways to attract investors in MFs

FM will meet industry representatives and SEBI to develop plans that attract retail participation

June 29, 2012 11:27 IST | India Infoline News Service
The finance ministry and capital market regulator SEBI (Securities and Exchange Board of India) are planning to find out ways that would help to bring back the lost glory of the mutual fund industry.

According to the AMFI (Association of Mutual Funds in India) data, mutual funds lost over 0.7 million folios (1.5%) over the past six months ended March 2012 at 46.4 million folios. Over the year ended March 2012, the industry lost 0.78 million folios (1.7%). One of the reasons for erosion in folios is the poor retail participation.

The ministry will meet industry representatives and SEBI officials on 2nd July to develop plans that attract retail participation and motivate distributors to sell funds among others. Fund houses launch mutual fund schemes which are sold by intermediaries like independent financial advisors, financial planners and banks. Commissions to distributors and marketing expenses were met by the fund house by charging an entry load of 2.25% from investors.

In 2009, SEBI banned the entry load which dried up inflows into mutual funds. As a result, in the past two-three years commercial interest of distributors has come down, and they are not motivated to sell mutual funds.

Brokers feel that the ban could have been implemented in a phased manner as it made little sense for them to sell MFs in smaller cities for collecting investments worth a few lakhs. Industry body AMFI and mutual fund houses have made several representations to SEBI in the last one year requesting revision of the cost structure, so as to have a wider retail participation and geographical penetration. Experts suggest a comprehensive package of measures to revive the industry.

Over the past four years, fund houses have pointed out the concern of declining assets and have identified pension schemes as the one big push that will attract retail investment. However, the fund houses say they need more clarity on guidelines and the schemes are stuck in a tiff between pension regulator PFRDA (Pension Fund Regulatory and Development Authority) and SEBI.

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