Signalling a change in the distribution trends in the mutual fund industry, the presence of high net worth Individual (HNI) investors has increased by 27 per cent over the last two years in terms of folios. According to data available on the Association of Mutual Funds in India (AMFI) Web site, the number of HNI folios has increased by 1.6 lakh folios since March 2009.

However, it must be noted that the HNI segment consists of only 1.65 per cent of the total folios in the industry. HNI investors are defined as those individuals who invest Rs 5 lakh and above.

While this may not be a significant number, fund analysts say that this could be an attempt on the part of the mutual fund houses to increase focus where the “economics of the business is profitable.”

Retail investors still have the lion's share with 97.5 per cent of the total folios in the industry. However, this has been on a decline since March 2009. The share of retail folios has fallen from 97.8 per cent (March 2009) to 97.5 per cent (March 2011). During the same period HNI presence increased from 1.37 per cent to 1.65 per cent.

“While HNIs have been investing more in FMPs, retail investors have been coming in large numbers through the SIP schemes. But in spite of this, if there is a drop in retail presence then it is a matter of concern,” said Mr Hemant Rastogi, CEO, Wiseinvest Advisors.

Debt, more popular

More than 100 FMP products were launched during the last fiscal. Debt products are more popular among the HNIs than among retail investors.

Retail participation on the other hand, in the last fiscal, has seen a drop of about 8.7 lakh folios to 4.6 crore. With the ban on entry loads in August 2009, it became highly unprofitable for fund houses to sell mutual funds to retail investors.

“One reason for drop in retail participation could be due to non-completion of the KYC formalities,” said a fund house official.

According to AMFI, the total number of HNI folios between March 2009 – 11 has increased by 1.6 lakh, of which 1.2 lakh folios were added between March 2010 and March 2011.

The sale of a mutual fund scheme can earn a distributor a commission of anywhere between 75 and 100 basis points. So, a distributor can earn a minimum of Rs 4,000 on the sale of a scheme of at least Rs 5 lakh to an HNI client. However, distributors and fund houses argue that most HNI clients are beyond the purview of the small distributors as they prefer to invest through banks or private wealth managers.

For the period September 2010 to March 2011, the majority of HNI investments were in the equity schemes (3.9 lakh), followed by debt schemes (2.9 lakh) and liquid schemes (18,385).

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