New strategy: Mutual funds turn

focus on retail investors

Madhu T, TNN, Jan 27, 2010, 12.24am IST

MUMBAI: The Mutual fund industry is passing through

testing times, with assets dwindling owing to withdrawals by
banks and investors showing little faith in the long-term
prospects of MFs. Fund houses are now going back to the
basics: serving individual investors rather than chasing banks
and companies for showing impressive figures of assets under
management, something that the Securities and Exchange
Board of India has been advocating.

Birla Sun Life Mutual Fund CEO A Balasubramanian said

investors have to be educated about the need for "proper
financial planning for long-term prospects and that they don't
have a better vehicle than mutual funds to achieve it".

"We also have to tell them that they should consider equity for
long-term goals," he said, adding that getting individual
investors to understand this tenet is the only way forward for
the MF industry. "Many mutual funds are working hard at it,"
he said.

A senior fund manager, who didn't want to be named, said: "If

the regulator is going to stop banks and companies from
investing in MFs in a big way, the only way out is serving
individual investors." The MF industry has been facing the
heat ever since the market watchdog abolished the entry load
from August 1. This has effectively taken the incentive away
from agents to sell MF products, fund houses feel.

"The energy is missing. The push factor is not there anymore,"

laments Balasubramanian. Many fund houses say distributors
have started marketing unit-linked insurance plans (Ulips)
instead of MF schemes as Ulips offer better commission to
agents.

The attitude of retail investors is also not inspiring much

confidence among fund managers. Since August, investors
have been pulling out money from equity schemes. Equity
MFs witnessed an outflow of Rs 2,464 crore in December,
higher than the net outflow of Rs 814 crore in November and
the reported net outflows for five consecutive months.

Besides, huge withdrawals by banks recently have also forced

funds to review their business model. Banks have pulled out
more than Rs 1,00,000 crore invested in MFs in a single
fortnight of December. "The total assets under management
(AUM) have dropped below Rs 8 lakh crore, mainly because
banks tend to take money out of MFs during December. It is to
be seen how much of it would come back since the RBI's
observations about banks parking money in MFs," says Y
Jawahar, vice president & head, distribution, Mata Securities.

Many industry watchers feel that the money taken out of MFs
won't return to the industry entirely, as the RBI wants banks
to start lending to companies rather than opting for an easy
way out.

Industry players also believe that the talk of scrapping the tax
advantage enjoyed by banks and companies in MF
investments would dampen the sentiment. As of now, it
seems, 'back to small investors' is the only mantra that can
help funds rediscover their lost magic.
Read more: New strategy: Mutual funds turn focus on retail investors - The Times of
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Mutual-funds-turn-focus-on-retail-
investors/articleshow/5502795.cms#ixzz1ElaQq5jH

Articles
Why Mutual Funds Are A Better Option for
Retail Investors
Investing directly in share markets is very risky task for a retail investors who
has limited money, time and knowledge. Hence, it is best for him to invest in
mutual funds.
It is simply instinctive to get attracted toward equity. The success stories
- few true and many false - of people having become millionaires
overnight, are bound to allure anyone. But the fact is that Stock Market
isn't easy money; Stock market is not everyone’s cup of tea.

It is our hard-earned savings, which is at stake. So let’s be very

concrete about it.

Do you have adequate capital?

It is sheer common sense that a diversified portfolio with 18-20 stocks is

less risky than a small portfolio with only 3-4 stocks.

However, for a retail investor, capital is normally limited. With this small
money supply it won't be likely for him to adequately diversify his/her
portfolio. In such a condition, Mutual Funds extend an alternative to be
a part of well-diversified portfolio even with small capital like $100.

Naturally, a small portfolio can give super natural returns but on the
other hand the risk is also very high. This high-risk high-reward scheme
wouldn't be appropriate for absolute majority of retail investors. It just
suits a couple of select expert investors who have lots of money to put
into market.

Also, with moderate capital it's hard to buy pricey shares like Google,
Infosys etc. This drives us to buy low price stocks. Broadly speaking
high-priced stocks will be good shares and low-priced stocks might not
be that good shares. Hence, with limited capital you could end up with a
inferior portfolio.

Given the fact that moderate capital could mean small and inferior
portfolio, Mutual Funds perhaps are more preferable path for those who
cannot bring in enough money for investing
Do you have adequate knowledge & expertise?

Ok, let’s be really honest and frank here.

· Do you have more expertise about companies, economy, market

trends, etc. than a qualified and knowledgeable professional investment
company?

· Can you interpret the balance sheet and Annual Reports as easily as
an investment company and make right conclusions?

· Can you identify the future sectors of growth? Or those that could face
a downswing in the immediate future?

In short, are you more knowledgeable than an investment company?

In 99% cases, the answer would be ‘Nope’.

So why do common retail investors enter the hard terrain of securities

industry, when you have the chance to allow the exert people to do the
task for you?

Do you have adequate time & resources?

Let’s presume that you have big bucks to invest and also a really sound
understanding of the equity markets. But do you have the third
important criteria, "Time & Resources"?

There are numerous listed companies. Some of them are booming,

some were booming and some will be booming. You need to purchase
stocks that will be flourishing; you need to exit those whose flourishing
phase is about to cease; and you need to hold on to those who are still
in the success phase. The timing is very decisive for making fortune in
stock markets.

Now this list keeps varying quite frequently and it calls for constant
research to keep oneself updated. So, there won’t be many retail
investors who can afford to devote time to study thousands of annual
reports and tracking the performance of companies. Moreover, yearly
reports are not all that is needed to research a company. How many of
us can travel to company premises, contact their management and talk
over their plans, earning expectations, etc.? Can you talk personally to
the industry experts? Even if you can do all of this, can it be done on an
ongoing basis - day after day every year?

So who is best person to do a sound research - a Mutual Fund with its’

experienced research squad or you, who are as too occupied with our
own businesses/job?

Unlike all this, opting for Mutual Funds is a comparatively much easier
task. Also, it does not ask for close monitoring. Hence it becomes the
finest option for retail investors to relish the yields of stock market,
without being forced to commit lots of time and effort.

www.buzzle.com/articles/why-mutual-funds-are-a-better-option-for-
retail- investors.html -

Mutual funds to focus on retail

investor to increase profitability;
shares same pain
Increased retail penetration needed to build long term assets,
noticed industry players.
Print Article
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Chintamani Dagade | 18-06-09 | E-mail Article

At the recently convened CII Mutual Fund Summit 2009, mutual

fund companies agreed and shared similar thoughts of deepening
retail penetration to expand their businesses and improve
profitability. Though similar thoughts were shared earlier in the past
of reaching out to retail investor, but the seriousness across all fund
companies was mainly felt now when the industry agreed it is time
to “Go Retail”. In the past, fund companies shied away from
reaching out to the retail investor, owing to higher costs and lower
business. Hence, the focus was mainly on corporate investor, who
invested in large sum, though for short term and in lower margin
assets like liquid, short-term bond funds. No doubt, corporate
investors (including banks, financial institutions and foreign
investors) accounted for 57% of industry assets of around 4.2
trillion rupees as of March 2009. Large chunk of the corporate
money stayed in liquid/money market and debt oriented funds, a
low margin business.
The global economic crisis, which hit the Indian mutual fund
industry hard, especially in October 2008, when even money
market funds, which considered to safe investments without any
possibility of erosion in capital, gave negative returns. The crisis
also hit the fixed maturity plans, a competitive and hot selling
product then, providing indicative returns and competing with
banks’ term deposits. The survival of this product is now a question
mark. Clearly, the crisis led to heavy redemptions in short-term
debt funds in October 2008 and therefore, the industry thereafter
registered seven consecutive months of negative year-on-year
growth. It is only in May 2009, the industry registered positive
growth, as per the industry association.
It is now, post the global economic crisis, the fund companies
agreed that it is time to deepen the retail penetration to increase
profitability, through expanding reach in Tier 2 and Tier 3 towns.
The retail investor became the main focus of the CII Mutual Fund
Summit as mutual funds, distributors and other intermediaries
discuss ways to reach retail investor and increase customer
awareness about mutual funds and financial literacy, the key
challenges impediment to the industry’s growth, according the CII-
KPMG report, published at the summit. The limited focus beyond
the top 20 cities, limited innovation in product offerings, limited
flexibility in fees and pricing structures, limited customer
engagement, lesser focus on public sector banks for distribution of
mutual fund units and multiple regulatory frameworks were the
other key challenges brought out by the KPMG.
The simplification of mutual fund products and application form,
limiting launch of new fund offers, avoiding duplication in product
offerings, reducing complexity of products, etc., were the areas,
discussed.
The capital market regulator, the Securities and Exchange Board of
India, too urged mutual fund companies to focus on retail investor
for long-term growth and reduce their reliance on corporate
investors.
The KPMG report pointed that the increase in revenue and
profitability of the Indian mutual fund industry is not in line with the
assets growth. During the last five years as of March 2009, when
the average assets under management grew at 35% CAGR, the
industry profitability (profit before tax as a % of AUM) declined from
24 basis points in FY 2004, to 14 basis points in FY 2008, owing to
rise in operating expenses. The operating expenses increased from
41 basis points in FY 2004 to 113 basis points in FY 2008 during the
same period, primarily due to increased spending on marketing,
distribution and administrative expenses.
Though, a lot of problem areas and related action points were
noted, it has to be seen whether all stakeholders responsible for the
industry growth, clearly execute them.

www.morningstar.co.in/in/news/article.aspx?articleid=80749...

Articles

Retail investors shy away from

equity Mutual Funds

MUMBAI: A Revival in net flows into equity funds is hardly a trend

reversal as tenacious retail money and independent financial advisers
who bring in small investors continue to shy away from the market,
money managers say.

Equity mutual funds collected Rs 1,250 crore in January, recording their

first net inflows after five months. But most came from high networth
individuals (HNIs), who tend to get in and out of funds, money
managers said.

“When that kind of money comes in, it’s not sticky,” chief executive of a
domestic fund house said, but refused to be identified as his firm also
caters to the HNIs. “This is not true retail (money) which will come in
and stay.”
The BSE Sensex skidded 6.3% in January and helped attract investors,
many of whom had exited equity funds in 2008 fearing lofty valuations,
said Sanjay Sinha, chief executive of DBS Cholamandalam Mutual
Fund. “One-month inflow cannot be an indicative of a trend,” he said.

Between August and December, about Rs 7,100 crore flowed out of

such funds as investors booked profits and financial advisers held back
recommendations on fears a new rule banning entry fee charged by
funds would cut their fees.

“It’s a better situation than August to December but we would like to see
it on a more sustainable basis in the next few months for us to establish
it as a trend,” said Saurabh Nanavati, chief executive officer of Religare
Asset Management.

MISSING RETAIL CLIENTS

Equity funds, which managed Rs 1.9 trillion at the end of January, are
key to the profitability of money managers as such funds earn the
biggest management fee of about 1%.

That’s one reason money managers were stunned by a ban on entry

fee charged by them from August 1 last year as it limited the ability of
fund managers to pay distributors.

The fund industry fears distributors would now switch to selling

insurance-linked investment products which pay higher fees.

TP Raman, managing director of Sundaram BNP Paribas Mutual Fund,

said retail clients were still shying away from equity funds and flows via
systematic investment plans, which allow investors to put small
amounts every month, have dropped.

“The IFA (independent financial advisers) seem to be missing from the

scene now,” Mr Raman said, calling it the main reason why retail
participation has dropped. “They were getting us the smaller tickets,
which were more stable and which had embedded value.”

A new equity fund from Sundaram has collected Rs 500 crore and
received 65,000 applications. Typically, Mr Raman said, his new funds
get more than 100,000 applications.
HNIs account for about 20% of the assets of Indian equity-oriented
funds and churn nearly a fifth of their investments within six months,
according to latest data released by the Association of Mutual Funds in
India (AMFI).

By comparison, retail investors control 65% of the assets and keep 90%
of that parked for more than six months, providing stability to the
industry’s equity assets.economictimes.indiatimes.com › ... › Mutual
Funds