SEBI to consider new policy for mutual fund sector soon

Market regulator SEBI plans to consider a new long-term policy for the mutual fund sector at its next board meeting to be held soon.

Speaking at a function to inaugurate 51 branches of SBI Mutual Fund beyond top 15 cities, U.K. Sinha, Chairman, SEBI, said the mutual fund industry has lost its focus since the launch of the first scheme way back in 1964.

“If you take, for instance, insurance or pension products, investors are clear of the role these products play. We have received lot of feedback from the mutual fund players and these would be taken into account while framing the policy that will define the role of mutual funds,” he added.

The market regulator is also considering measures to revive investors’ interest in real estate mutual funds.

Five years back, SEBI had allowed mutual funds to launch schemes related to the real estate industry, but none have entered the market till now.

Dwelling on the poor response for the Rajiv Gandhi Equity Scheme, Sinha said the nine schemes launched in the last one year have managed to collect just ₹53 crore.

“We understand there are challenges in the Rajiv Gandhi Equity Scheme. We have received some suggestions. We will do what it takes to revive investor interest in the scheme,” said Sinha. The assets under management of the mutual fund industry have remained almost stagnant at ₹8.25 lakh crore in last 12 months, though it dipped sharply in July. Of the total equity assets, 88 per cent investment comes from the top 15 cities, said Sinha.

Retail participation in the equity asset portfolio of mutual funds dipped from 66 per cent in March last year to 61 per cent. This may be a function of the market, he said, adding the only silver lining has been that premature redemptions from systematic investment plans have come down in the last nine months.

Realising various problems of the industry, SEBI in September 2012 allowed an increase in the total expense ratio of mutual funds by 30 basis points (0.3 per cent) if the fresh inflows come from beyond the top 15 cities.

“We found that the inflows from smaller cities increased to 3.45 per cent in September 2013 from 2.46 per cent, but again it has come down to 2.63 per cent in December last year,” he said.

Sinha said the mutual fund industry has established 1,600 branches, of which only 946 are in smaller cities. SBI Mutual Fund has 110 branches (excluding 51 opened on Monday) of which 86 are beyond the top 15 cities.

Lauding SBI Mutual Fund for opening 51 branches in smaller cities in one go, Sinha said the industry has managed to open only 55 new branches between September 2012 and December 2013. “I only hope other market constitutes also follow SBI in reaching out to smaller cities,” he said.

Highlighting the potential in smaller cities, Dinesh Khara, Managing Director, SBI Mutual Fund, said the newly opened branches will breakeven in one year.

Striking a note of caution Arundhati Bhattacharya, Chairman, State Bank of India, said the newly opened branches should first make investors aware of the risks involved and encourage investors to invest in liquid funds, graduating to debt and then equity products.

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