The Indian mutual fund industry’s assets under management crossed ₹20 lakh crore, a record, in September 2017. The industry has doubtless grown by leaps and bounds — and yet, nodal agency AMFI’s Chairman A Balasubramanian feels that the distribution community hasn’t quite reached the breadth and reach seen in developed markets such as the US or Singapore. Its recent awareness campaign, with the tag-line ‘Mutual Funds Sahi Hai’, is, however, nudging more investors to try out mutual funds. Excerpts from an interview with Balasubramanian, who recently returned from an eight-week study program at Harvard Business School:
What is AMFI doing to improve the awareness and reach of mutual funds?
AMFI has the responsibility to create awareness among the public about investing in mutual funds. To do this effectively, (market regulator) SEBI had mandated that 1 per cent of the investor education fund... must be disbursed at the AMFI level. The corpus built up in this process is being utilised to plan round-the-year activities to create awareness about investing in mutual funds. A committee, comprising industry players and an AMFI team headed by its Chairman, undertakes various exercises to make the promotional activities relevant to consumers. The ‘Mutual Funds Sahi Hai’ campaign is one outcome of this exercise. The purpose is to make mutual funds a critical investment consideration for every potential investor in the country, irrespective of the size and frequency of the investment.
Last year, AMFI had made many proposals to the Finance Ministry: it wanted tax benefits for debt-linked savings schemes on the lines of ELSS. Will you pitch for it this year too?
We are still in the process of sending our recommendation to the Ministry of Finance as well as to SEBI; we will consider some of last year’s recommendations that are yet to materialise — especially those that will help build a sound capital market.
AMFI had also sought uniformity in the taxation of investment in MF schemes and ULIPs by exempting intra-scheme switches within the same mutual fund, but it was not accepted. ..
The merit of the recommendation is still intact. It is fair to expect the benefit that exist in ULIP schemes to be given to mutual fund schemes as well. Moreover, mutual fund schemes serve the long-terms needs of customers, and regular rebalancing of schemes remains a key aspect of managing long-term success. We will pitch for the proposal this year too.
Mutual fund assets have risen to
₹20-lakh crore in September. What next for the industry?
Mutual funds have been seeing continuous inflows across equity schemes as well as in fixed-income schemes. In the past few years, the industry has done great work in creating awareness about mutual funds. On top of it, the experience for mutual fund investors has been getting better every year and has been rewarding for long-term investors. This has boosted the confidence of investors that mutual funds are for long-term investing; that explains the increased inflows. We are also seeing higher levels of investor participation; the industry had remained under-penetrated for too long, and the catch-up is happening fast. Moreover, with interest rates staying low and investor interest in real estate fading, incremental savings have been finding their way into mutual funds. We feel this trend will continue and mutual funds will have as big a share of the financial sector in India as in the US.
Ever since direct schemes were mandated by Sebi, they have grown rapidly. How is this affecting the profitability of AMCs?
The industry has witnessed increased inflows into direct schemes from those who are savvy enough to invest on their own. This market expansion has also been supported by mutual fund advisors and distributors. As for direct investments, while AMCs charge lower fees, thecost attached to such customers is marginally higher than earlier as such customers are not serviced by any distributors or advisors.
India still has fewer than 1 lakh mutual fund distributors registered with AMFI. While B-15 towns are seeing growth in numbers, the number of distributors is far fewer than that of insurance life advisors. What is being done to increase the number of distributors and their reach?
There has been a growth in the mutual fund distributors community in recent years, including in the B-15 market. In some places, people have left government jobs to become distributors of financial products, including mutual funds. Given that India has a large pool of high savers, there is a huge deficit in respect of the number of advisors who can help savers invest in capital market-related instruments. In Singapore and the US, for instance, the ratio of distributors to the population is very high; in India, it is still low. This itself indicates that the distributor community in India has to grow in order to help the financial services industry reach every household.
There has also been an effort to help insurance agents improve their financial model by making them work for the mutual funds industry as well. Insurance agents are showing keen interest as mutual fund products are actually complementary to insurance products. We see reasonably good participation from this segment of the distribution community.
Any new disclosure norms on the anvil?
Nothing specific. Recently, SEBI came out with guidelines for product segmentation. This will ensure that communication of product becomes clearer in the minds of investors. Apart from this, there have been discussions about reporting returns adjusted for dividend (that is, total returns). This is being evaluated to understand the international practice.
What is the next level of technology adoption and investor-friendliness one can expect?
Industry players have launched mobile apps and other platforms for customers. They have also introduced mobile apps for distributors to enable transactions on behalf of their customers as well as to advise customers on a timely basis. There is a need to increase the use of these apps while building size and scale. I would assume that in the years to come, the usage rates will go up significantly as there has been a heightened understanding of the utility of technology platforms for many purposes, including transfer of funds etc.
AMFI had created mutual fund transaction platform, MFU (Mutual Fund Utility), to enable internet transactions across the country. We have seen transactions carried out from far-flung locations, which is an indication of the power of technology helping the industry increase its reach and serve people who are underserved. We have also witnessed mutual fund distributors using the MFU platform to execute mutual fund transactions in paperless form. We would like to see the industry move fully towards paperless transactions and embrace electronic transactions in the next few years.