The Hindu Business Line : AMFI, funds join hands to tackle churning of schemes by investors

THE Association of Mutual Funds in India (AMFI), the apex body of mutual funds in the country, has voiced concern about the high churning of schemes by investors and said it was "on the job" to tackle the issue.

"We have had interactive sessions with fund houses. We are together in tackling it," the AMFI Chairman, Mr A.P. Kurian, told Business Line.

He said there was a need to educate the retail investing public that it was not in their interest to churn the portfolio. "We have to educate the investors that equity has to be treated as a long-term investment," Mr Kurian said.

The mutual fund distributors should also play a major role in educating the investors. "The distributors should keep the interest of investors uppermost while selling the schemes," Mr Kurian said.

Industry officials said the high churn of schemes by investors was affecting the performance of several mutual funds.

Mr Kurian suggested that the provision of amortisation of initial expenses for open-ended schemes be removed to help the long-term investors.

Currently, the Securities and Exchange Board of India guidelines stipulate that new fund offers should charge not more than six per cent of its initial expenses (marketing expenditures such as advertisements, printing of offer documents etc) from the investors. The payment could be amortised over a period of five years.

An official in a private mutual fund said this rule was pitted against long-term investors of schemes. "While a short-term investor exits schemes in less than a year, the long-term investor pays the price (as he pays for the initial expenses over a maximum of five years)," he said, adding that it would be better if these charges were levied in the first year itself.

Mr Kurian also felt that the amortisation "... does not treat everyone equally".

A fund manager, when contacted, admitted that he was under pressure as investors enter and exit schemes at a quick pace. "The redemption pressures may force fund managers to make short-term decisions," he pointed out.