The Hindu Business Line : Inflows into equity mutual funds slow down as distributors shift focus

Kolkata, Nov. 13 Investments into equity funds are slowing down with distributors opting to sell ULIPs and post office savings schemes as commissions from mutual funds have become negligible, said experts.

Equity mutual funds stopped being distributors’ favourite schemes after SEBI banned entry load on mutual funds from August 1. The ban brought down the distribution premium charges from 2-3 per cent to 0.4-0.5 per cent.

According to figures available on the AMFI Web site, investments into equity funds fell by about 51 per cent at Rs 4,261 crore as on October, against Rs 8,737 crore in July. The growth during the same period last year was at 14 per cent at Rs 2,885 crore in September 2008 (Rs 2,538 crore in July 2008).

August to October 2009 witnessed equity outflows from the industry – from the transaction perspective as well as assets under management of over 3,900 crore moving out, Mr Saurabh Nanavati, Chief Executive Officer, Religare Mutual Fund, said in a press release to the BSE on the performance of its equity NFO.

Mr Nanavati attributed this to profit-booking on advice from distributor and slowdown in fresh collections due to the distributors undergoing a change in their business model of charging advisory fees.

Institutional investors typically invest in debt or fixed income instruments, while retail customers invest in equity funds. The vast network of distributors caters to such retail customers. The fall in inflows into equity funds, therefore, explains the lacklustre approach adopted by the distributors for such funds.

Mr P. Chatterjee, a distributor, said: “We are trying to push more of ULIPs and post office savings scheme products as we do not stand a chance of earning any commission on selling a mutual fund product. By selling ULIP we can earn 2 to 5 per cent and a post office savings scheme will earn us anywhere between 0.5 and 1 per cent commission.”

Charging customers for services offered would be practically impossible, he said, adding: “My customers will never be ready to pay fees for my services or advice, so I decided not to take too much trouble for selling a mutual fund product.”

According to Mr Krishnamurthy Vijayan, Executive Chairman, J P Morgan Asset Management, there has been a marked shift from mutual funds to ULIPs after the new regulation came into effect. “If you look at the recent trend, equity market has been giving better returns for the past couple of months but investments in equity funds have been negative, which clearly indicate the role of the distributor in the system,” he said.

Mr A. Balasubramaniam, Chief Executive Officer and Chief Investment Officer, Birla Sun Life Mutual Fund, said: “The growth of equity funds has been sluggish over the past two to three months. This is due to the combined effect of the new regulation and also because some investors are waiting for some correction to happen in the equities market.”

There was no level-playing field in the Indian financial market, Mr Jaideep Bhattacharya, Chief Marketing Officer, UTI Mutual Fund, said. “Volumes in the equity funds have dried up recently as distributors are still working out models for distribution and are in the process of working out the modalities. Moreover, there are price differentials between mutual funds and insurance products. Distributors find it lucrative to sell insurance products, particularly ULIPs,” he added.

A distributor firm in the city, which only had a tie-up with Life Insurance Corporation, has now tied up with ING and Kotak for selling insurance products. “Though selling mutual fund was easier than selling insurance, we have tied up with more insurance companies as selling mutual funds is no longer lucrative for us,” said a senior official at the firm.

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No entry load: Retail activity dull on Day 1
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