The MF industry is faced with huge redemptions even as the stock market is a shy away from testing its all-time high. Does the answer to this problem lie in making Amfi a self-regulatory organisation (SRO)?
There is a certain amount of despair in the industry. This is because at a time when equity markets are soaring, there are heavy redemptions in the industry. Net sales are negative on a month-on-month basis. In September, redemptions stood at Rs 7,000 crore.
This is one of the biggest challenges players in the industry is facing. At this critical juncture, the approach of Amfi would be to collaborate with SEBI to find out ways and means to strengthen the industry. The situation, however, is not that bleak and bad. One must look into the fact that new sales of other equity products are happening. Take for instance, Ulips.
Even when new rules came in from September 1, their sales have been positive. This suggests that if distributors are not compensated, it is natural for them to go for other products, which provide them better remuneration, and sell them vehemently. Considering all such factors, we want more dialogues with the regulator so that they can appreciate our concerns and difficulties. In this way, even we can understand what is their thought process and philosophy. This is the first approach.
Another factor that needs to be addressed is according SRO status to Amfi. This would definitely help us in taking stronger decisions to resolve issues of the MF industry. To become an SRO, certain structural changes would be required within Amfi and we are ready to implement them. We will also strengthen our secretariat. Becoming a full-fledged SRO would take time and we want SEBI to prioritise this.
A new MF policy is on the anvil. What are some of the key issues that could be tackled here?
In the UTI Act of 1963, in the statement of objectives, it was said that MFs are the means to mobilise earnings. The government, in 1964, facilitated the formation of two big institutions — IDBI and UTI. The role of IDBI was to facilitate project finance to entrepreneurs and UTI was created to provide equity capital. However, between 1963 and now, the whole purpose of MFs has got diluted.
A new UTI was created having 47 MFs under it. During this journey, after the liberalisation happened, competitiveness increased in most industries with the entrance of private players. Most sectors have a clear-cut mandate to follow. One element that such mandates have in common is a social obligation. With regard to MFs, there is no original mandate to follow. For example, in the aviation sector, there is a policy which states that if you want to operate as a full-fledged airline company, you have to fly in loss-making region like the north east as a criteria and as a social obligation.
Does it make sense to revert to the practice of paying distribution fees? Some MFs had started giving trailing commission to distributors. Can they adopt this to encourage distributors to sell equity products?
I don’t have an answer to this. Of course, the solution would emerge only in consultation with the SEBI. We, at Amfi, have identified two problems. Investors are exiting with the market testing certain levels. Secondly, right now, certain products have been promoted by MF distributors while certain products have not.
That is my disappointment. We are debating a solution to this. Unless there is dialogue with Sebi, there can’t be a solution. Hence, the intervention of Sebi is necessary and important.
Do you think a lot of retail money is going into real estate and gold?
That is my impression, too. There is a general liquidity tightening in the system. Bank credit growth is not growing. If you include Rs 1 lakh crore of 3G and broadband money into the system, bank credit growth will be 19%. However, if this amount is deducted, credit growth is far less.
Even bank deposits are not growing. In fact, every quarter banks have to play certain tricks to show that bank deposits are growing. So, after all, where is the money invested going? I would guess this money is going into either real estate or gold.
What are the steps Amfi is taking to educate investors?
Very soon, we are going to come up with an investor awareness programme in partnership with Sebi. The idea is to impart basic information to investors on MFs. At UTI, we launched an investor awareness programme called Swatantra that was held in 300 cities for 100 days and was attended by 15 lakh people. The awareness programme of Amfi, in collaboration with Sebi, would be bigger.
Our experience at UTI suggests the problem with an investor is not disinclination, but ignorance of products. Hence, it is important that events that focus on making investors aware of MFs are held on consistent basis.