The market regulatory body Securities and Exchange Board of India has long been pushing fund houses to launch pension products for attracting retirement money into the equity market but no asset management company has come forward since the announcement last year.
A pension fund from a mutual fund company would basically be an equity fund that would be locked in till the investor attains retirement age. But the time of rollout remains unclear.
“We don't think the launch is going to happen in a hurry. At least not for the next four to five months,” said a mutual fund analyst with Bajaj Capital, Mr Surajit Mishra.
The overall dull sentiment in the mutual fund industry, which is already struggling with more pressing issues such as de-growth and dipping assets under management, has made such a fund launch a less than immediate priority for now, said Mr Deepak Chatterjee, Chief Executive Officer, SBI Mutual Fund.
According to latest Association of Mutual Funds in India data, the AUMs of the mutual fund industry fell to Rs 6.11 lakh crore as on December 31, 2011, from about Rs 6.26 lakh crore as on December 31, 2010, showing a fall of about 2.38 per cent on a year-on-year basis.
But it is mainly owing to the investor's unwillingness to play their long term retirement money in the risk-prone equity market that such a scheme is unlikely to take off.
“Very few people in India are market savvy; so somebody who is unable to move his pension fund equity portfolio to take the benefit of timing the market would be left with low returns. And since the basic purpose of such a retirement fund is to provide some support towards the end of working life, they will rather steer clear of any such risk and go for safety,” said the Chief Investment Officer of a bank's pension fund division. “The purpose and structure of a mutual fund and pension fund are different on many accounts and most importantly on the time-period dimension with mutual fund structure focussing on short-term perspective while retirement funds are long term. That is why they cannot be sold on the same platform,” he added.
“Distributor payouts are closely connected with the penetration of products in the markets. If payouts on other financial products are far more attractive, then why would they distribute a long term and large cost incurring scheme such as a pension fund,” added HSBC Mutual Fund CEO, Mr Puneet Chaddha.
“The payments made to fund managers to bring mutual funds in the market is abysmally low so they see no reward in getting into it till the pricing is revised by the government to sufficient levels,” added Mr Mishra.
While currently no AMC have come forward to launch a pension fund, some are toying with the idea of launching a retirement product with a different architecture by tinkering around with some of the parameters to combine features of both pension fund and mutual fund. This would help provide the necessary checks and balances for protecting the interest of the long term investor and assist in making the product more attractive, according to AMCs.
“We are thinking about whether we can provide people with a long term saving solution to meet their retirement requirement but this plan could be different from what is being suggested by SEBI. We are trying different variations with different parameters including tax treatment and age brackets of eligible investors to arrive at the best option. The process will take time as it has to go through our internal approval as well as SEBI's approval,” added Mr Chaddha of HSBC Mutual Fund.