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You are here : IndiaNotes >> Market Action >> Fundamental

Why MF Industry is not growing at faster pace

Pankaaj Maalde | 19 Aug, 2016  | Follow Author | Add to my Favourites 
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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.

 




About Pankaaj Maalde

The author is a CERTIFIED FINANCIAL PLANNER by Profession. He is preparing comprehensive financial plans for the Clients. He holds Bachelor Degree in Commerce and Law. He is also IRDA and AMFI Certified. He has over 12 years of rich experience in the field of Financial Services with special expertise in Life Insurance, Loans and Mutual Fund products.

 

The author can be contacted at [email protected]

 

 

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. The author does not accept any liability whatsoever arising from the use of any of the above contents.

 




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