A mutual fund house is known to have recently severed ties with its public relations agency. While the agency said it was a cost-cutting measure on the part of the client, the latter said it was not happy with the PR firm.

Fund houses are not willing to admit that they are on a cost-cutting exercise, they prefer to say they are cautious. But there are indications that they are pruning expenses. The CEO of a mutual fund house privately admitted that the advertising expenses of the industry have come down by 15 per cent since 2007. “But having said that, fund houses will not be doing away with what they need,” said another fund house official.

Another indicator is the number of new fund launches. From January 2007 to July 2009, a total of 1355 new schemes were launched, with an average of around 44 schemes being launched per month for the period of two and a half years, according to data from AMFI.

However, the number of new schemes launched has fallen drastically since then. From August 2009 – January 2011, only 470 new schemes have been launched, with an average of 26 new schemes a month over a period of 18 months.

Launching fewer funds means less expenses on distribution, advertising and selling new schemes.

Prior to August 2009, fund houses could also charge an entry load to the investors. However, SEBI imposed a ban on this, beginning August 2009. Before that till February 2008, fund houses could also charge 6 per cent of initial issue expenses to the investor, which affected the NAV of the scheme. The ban of both the initial issue expenses and entry load increased the expenditure burden of the fund houses, thereby reducing the profit margins of AMCs.

Fund house officials while accepting that money is tight and that profit margins are thin, also believe that things will be getting better. “What matters now is the strategy that the fund houses will now have to put in place. For now, we just have to live through the phase,” said a fund house official.

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