Mutual Funds are fundamentally a superb product but unfortunately the
fundamentals of this product have not been understood or I should say
misunderstood by a majority of investors.
Time and again AMFI, SEBI, AMC’s
have been coming out with investor awareness and education campaigns for
promoting investment culture in Mutual Funds.
Huge budgets are allocated to the campaigns and every campaign reads out
loud about benefits of Investing in Mutual Funds.
SEBI off late has been hard on
AMC’s and has come out with regulations giving huge benefits to investors.
Even if we look at Fund
performances at large with respect to horizons the respective fund categories
have performed up to the mark (barring certain bad patches) and made money for
investors.
The benefits are many if I have
to list them down one by one.
Still the retail inflows into
MF’s are limited. Why?
According to me the Problem may
be divided into two broad areas:
1 1.) Distribution
Front
2 2.) Education
& Awareness Front
1.) Distribution Front
· - Low
Revenues and Inactive distributors: Distribution has been the key to growth
for any industry and Mutual Funds are no different. It was one of the preferred
financial products till Aug 2009 when SEBI abolished the entry load in Mutual
Funds. After entry loads were abolished revenues for MF’s have been extremely
low. AMC’s have been running on tight pockets as they need to manage everything
out of the expenses charged to the fund. Distributor commissions were reduced
across the industry and it led to MF’s taking a backseat in the selling
priority of distributors. The distributors sell MF’s on a pick and choose basis
wrt the commission offered by the AMC’s. As such awareness about MF’s is low
and inactivity of distributors adds to the woes.
· - Improper
Advisory and Misseslling: Mutual
Funds have traditionally been push products and also carry some degree of risk
and volatility. Hence they need a proper advisory when it comes to investment.
However MF sales have been low on advisory many a times and mis selling has
been rampant in the past with many issues coming to the highlight. Investors
were sold Equity products (ULIP’s, Equity Funds etc) without explaining them
the horizons and the embedded volatility. Improper horizons led to untimely redemptions
and ultimately a negative perception of MF’s among the investors. Right advisory has a long term impact.
Mutual Funds are fundamentally right products and if sold with right advise
even with low revenues they shall create a better value and revenue proposition
for advisor and the client.
2.) Education and Awareness Front
· - Mutual Funds
always invest in Equity Markets: An extension to the above point on
advisory. Because of improper advisory a
lot of investors still have the perception that MF’s invest only in Equity
Markets. They are not aware about Debt funds and its various categories.
Moreover compared to the good times of a bull run bearish phases in markets are
publicised in media more with a panic leading to negative perceptions. Financial
awareness campaigns have to speak out these clarifications loudly so as to
clear these negative perceptions. Also Education distribution on this front
has to be strong so as to make the awareness stronger and inroads.
· - Advisory
Fees, Financial Planning and Wealth Management: The concept of advisory
Fees and Financial Planning is in initial stages and yet to take off in a big
way. It will take some time before investors realize the value of paid
advisory. This should felicitate the investor awareness and weed away the
negative perception about Mutual Funds.
· - Penchant
for Fixed Returns: Fixed return syndrome has been widespread among most of
Indian investors. FD’s, PPF’s have always been hot favourites of Investors as
they can regularly see their money growing. Well I won’t get too much into the
arithmetic but calculations have proved
that FD’s, PPF’s or for that matter any traditional fixed return product are
not always the best source of investment. MF’s do not offer fixed returns
but always find a place when it comes to a certain investment horizon along
with certain tax benefits. However a very small percentage of investors are
able to come out of their shell of Fixed return syndrome.
Conclusion: I believe Mutual Funds are a poor victim of Negative
perception and half knowledge of investors coupled with the inactivity of
distributors. Both the sides i.e. Investors are distributors are negative about
Mutual Funds with their own reasons. Recession, Global environment, etc are
smaller factors. Any MF Sales person has more to fight with the Negativity than
anything else in selling Mutual Funds. The strategy requires some brainstorming
to get things back in order. Initiatives are on at many levels but
implementation strategy shall be the key for things to take off in Mutual Fund
Industry.
Being an optimist and a well
wisher of Mutual Fund Industry I look forward to see good times for the
industry in near future.
No comments:
Post a Comment