The Hindu Business Line : Strong case for discarding the term `IPO'

THE asset management industry in India is at the crossroads. It seems to be thriving, considering the sheer increase in the number of funds being fashioned and the buzz associated with initial offers.

But, not too far away from the hustle and bustle, there are concerns alright. As Mr A.P. Kurian, Chairman, Association of Mutual Funds in India (AMFI), puts it, "there are miles to go before all retail segments are tapped".

Besides, there is vigorous competition from products like ULIPs, he adds.

Excerpts:

IPOs are turning into high-decibel affairs. Your comments.

That is true. You must appreciate that funds have to communicate well with their target audience. I think there is a strong case for discarding the term `IPO' simply because it can throw up false notions.

Investors must not equate initial offers by mutual funds with equity issues by companies entering the primary market.

We at AMFI have proposed to work out other names, which will be made applicable to funds launching new products.

Expressions such as `New Fund Offer' and `New Scheme Offer' are probably better.

Some sections often turn impractical in their effort to derive the best out of their allocations. They have the habit of investing in new offers, typically ones that have tags like `No Load' or `Rs 10 Offer', with the hope of getting quick returns.

Will that compel fund houses to change their advertising policies?

We understand that people, especially those who invest only for the short term, often get disillusioned with initial offers by funds immediately after these become available for on-going sale. A scheme's NAV may not be Rs 10 or higher as soon as it is introduced.

Consider some of the recent launches and you will see how NAVs have stayed below the offer price.

The message has to reach the target audience. It is a daunting task and will not be executed in a hurry.

The regulator, I realise, wants the market to be aware of such things.

In a way, our advertisements should also reflect this.

Will that induce investors to take correct steps?

I will advise them to get their concepts right before they even begin to write cheques.

They should know where the money is going and how the funds are constructing their portfolios. People need to spend enough time to go through offer documents, re-balance investments and fine tune asset allocation strategies.

There is, for instance, a strong trend in support of the so-called "at par" offerings. That is not entirely desirable, not when investors ignore all the other crucial factors.

Why are retail investors still keeping their distance from funds?

Funds are yet to tap the retail segment fully. This remains a major concern.

Many small investors tend to opt for fixed-return products like GOI bonds. Guaranteed income is too much of a temptation for them.

Let me suggest here that the Government may actually consider imposing a limit on investment in such bonds, with an exception for senior citizens.

On another front, there is strong competition from unit-linked insurance plans, their high initial expenses notwithstanding.

ULIPs are being positioned attractively, a far cry from the days when the country's first ULIP was devised by Unit Trust of India. That was 1971.

In 2005, the market is quite different. So is the average investor's mindset.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Fund managers are hot picks

FMCG funds move up smartly

Investment is a flighty bird that needs to be controlled

Strong case for discarding the term `IPO'

Sensex may maintain upward momentum

Nectar Lifesciences plans Rs 100-cr IPO