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Mutual Funds-Complete Investment Solution: Suhas Rajderkar

suhas.rajderkar, Suhas Rajderkar (Senior Investment Consultant)

Today, 45 Mutual Funds are operational in India, with Rs 12 lac crores worth Asset Under Management (AUM) of which almost Rs 4 lac crores are in Equity segment. Around 2 crore investors (though 4 crores Folios) are taking advantage of approximately 2000 schemes of these mutual funds. In past 4 years, MF Industry has grown @ 20% CAGR. Every month, Rs 2000 crores is inflow only through Systematic Investment Plans (SIP).

It is easy to invest in MF. No entry load, D-Mat Account is not necessary, direct online investment is possible, no lock in period except Equity Link Saving Schemes (ELSS) wherein 3 year lock in is applicable since you get Income Tax Benefit. Whenever you need money back, it will come to your bank account just in two days from submission of redemption request. Minimum investment is only Rs 100. Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP) is possible which is automatic and your personal intervention is not required. You can increase, reduce or close your investment anytime without any penalty.

Medical examination is not required to invest in MF. This industry is regulated by Securities Exchange Board of India (SEBI) which is government regulatory authority. Mutual Fund industry is very transparent wherein AMCs declare net asset value (NAV) every day, entire portfolio is being disclosed once in month.  SEBI puts lots of restriction on how and where AMCs can invest money. E.g. MF cannot invest more than 10% of their schemes assets in shares of any one company. Unlike banks, mutual funds provide you any operational after sale services totally free of cost. E.g, suppose you want Statement of Account or change in nomination etc, the same will be provided to you without charging any fee. Can anyone think similar free service from banks wherein for each small service you need to pay? Now a days, you have to pay even to entre bank….!!!. Best thing is one can do his / her financial planning with the help of investments in Mutual Fund schemes by way of SIP, STP and SWP since MF provide schemes / solutions for almost all needs and goals of investors. Last year, there were only 30,000 complaints of investors which account for 0.06%.

Today, MF Investors aregetting Consolidated Statement of Account wherein they can see all investments made in many Mutual Funds and Shares at one place. Best of all is, as per the CRISIL-AMFI Index, Mutual Funds have given 16% CAGR returns to investors in last 15 years and this return is Tax Free return.!, which is highest among all asset classes here. Further, 93% of the schemes have bitten Benchmark of CRISIL-AMFI and around 42% schemes have bitten this benchmark by more than 5% margin. What else common investors can expect?

In spite of all these advantages, it is very sad that today, only around 2 crore investors invest in MF industry and of this, around 85% investors are from Top 5 Cities in India. There are only about 50,000 agents and hardly 295 Mutual Fund Advisors. (Role of Advisor and Agent is separate). We are complaisant and happy that we have crossed milestone of Rs 12 lac crores. But entire world Mutual Fund AUM is 2104 lakh crores of which alone USA has around 53% i.e. 1134 lac crores AUM in their MF industry.  India have only 0.53% of world MF AUM i.e. 12 lakh crores…..Long way to go…..

Why this happens and what are the reasons for this poor participation? I personally feel that MF industry is over regulated and there are lots of restrictions because of which they are unable to communicate with genuine small investors. And there is absolutely no level playing field for MF. Today you can find one full page advertisement in reputed newspaper about proposed residential complex somewhere at Worli in Mumbai worth Rs 25 cr to be completed after 5 years. But no where it is mandatory for builder to mention in the ad that ‘Real Estate investment is subject to market risk….’. Similarly big celebrities like Amitabh or Vidya Balan will find in ad of gold jewelry and it is not compulsory for shop to write that ‘Gold investment is subject to market risk…’. (By the way…gold has given – 7% returns in last one year!!!).


However, it is mandatory for Mutual Funds to mention in each communication and advertisement that ‘Mutual Fund Investment is subject to market risk…’.  Small investors get confused and think when it is written as to mutual fund investment is risky, then why to take risk? And they invest their hard earned money in some ponzy schemes / bhishis and loose entire

principle amount. (In fact why people lose money in ponzy schemes is due to non promotion of mutual funds in proper way!!) Ironically, if you wish to buy gold, you can just walk in to any shop with cash in hand and buy gold without even disclosing your right identity. Similar case with land and real estate. However, if you wish to invest just Rs 500 in any mutual fund scheme then you need to have PAN Card, Bank account details, Photograph and Address Proof. Today, thanks to Prime Ministers Jan Dhan Yojana, you can open Bank account without PAN Card with the help of only Aadhar Card. But Mutual Fund investment needs PAN Card. Due to this, common investors keep distance from Mutual Funds which is very wrong and Government (Read SEBI) should seriously think about the same. Then SEBI blame AMCs that they don’t reach to common investors and focus only HNI and Corporate Investors. Agents are being blamed that they mis-sell. In fact, there are so much restrictions on these agents that sometime I feel it is really sin to become mutual fund agent.  Therefore, many agents prefer to sale only Insurance Schemes where at least they get good commission. Now, there is rumor that even this scarce Upfront
commission to Mutual Fund agents will also be stopped and snatched.

And in India, there is no practice to pay for Investment Advice. People want it free. In fact if you want to promote Mutual Funds among small investors and B-15  (Beyond 15) cities then role of IFA i.e. Individual Financial Adviser is very important. Their help is must and nothing wrong in compensating them with correct commission. We appreciate Digital India but agents help is required in small cities even for this online investment. Therefore, it is very premature in India to eliminate Agents of Mutual Funds. Now, look at how investor’s education happens in India. SEBI has compelled AMCs to earmark 0.02% of their daily NAV (Net Asset Value) for Investors Education purpose. This amount today is whopping Rs 500 crores.

However, these investors awareness programs (IAPs) is complete failure and AMCs are majorly responsible for the same. In recently concluded CII Mutual Fund summit in Mumbai, SEBI Chairman, Mr U.K.Sinha criticized mutual funds for not taking right efforts for investor’s education and IAPs. SEBI noticed that only around 18% people are genuine investors in these programs. 6% IAPs are actually for agents and not a single investor attended programs. This is very serious. Instead of depending on their marketing staff for conducting such IAPs, AMCs should take help of independent professional training institutes. Further, it is necessary to continuously conduct IAPs in B-15 cities to create necessary awareness.

Conclusion: If government and SEBI really wish that common people (investors) should not fall pray of ponzy schemes then, they should help promote Mutual Fund Industry in right manner by reducing unreasonable restrictions on them. Level playing field should be created. And it is important for investors as well to take advantage of mutual fund schemes and not to invest in ponzy schemes.

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