Assessing the Past and Future of Mutual Fund Industry

Jan 02, 2017
Jimmy Patel- CEO, Quantum AMC

Year that was and will be for MF industry

Growth is on the cards of the mutual fund industry in India. The year 2016 has already seen regained space in inflows in equities since the total net inflow in MF schemes reached at Rs 3.03 lakh crore in April-November of the current fiscal, as opposed to Rs 1.84 lakh crore in the same period last year. The SIP mode of investments has also gained its popularity with more than 1 crore MF SIP accounts according to AMFI. In order to bring transparency into the system, the Market regulator SEBI suggested 'commission disclosure rule' from October 1, 2016 which was indeed a positive move. It has been also interpreted by many as a strong push by the regulator to guide investors towards the direct plan - which comes with a lower expense ratio as it does not incur expenses towards distributor's commission. Although ironically this year there has been a surge in the total no. mutual fund distributors registered with AMFI. As on October 31st, 2016 there are 81,133 MF distributors registered which effectively implies conclusion that there is balanced growth across Regular and Direct Plans of Mutual Funds.

Also with usage of digitalization likely to increase, investing becomes easier in mutual funds; for example the advent of C-KYC. This in the long term will help AMCs to penetrate in the B15 cities and reach out to more and more potential investors. Not to forget the ongoing wave of demonetization and its impact on stock market is likely to linger for some time and may lead to more inflows into equities if the markets continue to be bearish. Market regulator’s focus on investor education seems to have helped with investors rightfully investing when there is dip in markets. Therefore we hope to end this year and welcome 2017 on a positive note when it comes to equity investments via mutual funds.

In 2017, we will see more focus on retail investors, who are already showing a lot of commitment and maturity. SIPs will occupy a commanding share. The AUM of the mutual fund industry is quite likely to cross the Rs.20 lakh crore mark.

The mutual fund industry in 2017 could also continue to witness consolidation. Non-committal sponsors will exit owing to the stringent net worth requirement. Rising cost structure, mainly on account of increasing compliance and manpower costs, will strain economies of survival. However, with retail investors renewing their faith in Indian equities, we need more and more good and honest players in the industry. We hope SEBI allows eligible individuals to start an AMC (like in banking sector RBI granted banking licenses to individuals - small finance and payments banks to further the regulator's objective of deepening financial inclusion). In the US there are some large fund houses which were initially started by an individual. Vanguard and Templeton, both mammoth fund houses today were started by John Bogle and Rupert H. Johnson, Sr respectively. The last thing we want is a Mutual Fund industry where a cabal of large fund houses offers a limited choice to the investors. As stated earlier, RBI has already given a green signal to the banking sector by allowing new players to set up niche banks. This is a positive start in the finance industry and we look forward to the mutual fund regulator soon approving and making way for more and more individual investors to start an AMC in India!

Lastly, I look forward to the year 2017 with an aim to spread awareness about MFs. This can be achieved with the help of financial inclusion. The aim of the financial inclusion drive is to extend financial services to the large unreached population of the country. It is rather surprising that mutual funds – one of the most regulated, professionally managed and cost-effective investment options, with the potential to deliver high returns over the long term, have been overlooked by the government. All this, combined with the flexibility to make small-ticket investments make mutual funds ideal for retail investors.

That is essentially because mutual funds are considered as a risky instrument. One needs to understand that risks are unavoidable at large. However, there is a difference between undertaking manageable and unmanageable risks. Risks associated with products like mutual funds come under the former category. This is because mutual funds are well-regulated and professionally managed. SEBI’s stringent regulations that bind the mutual fund industry ensure that investors’ money is not misappropriated. Strict rules on commission disclosure help prevent misselling. Professional fund management gives investors the benefit of informed decisions, while systematic investment mechanism counters the risk of market volatility. All this, combined with the benefits of higher return potential, adequate liquidity and the flexibility to make small-ticket investments make mutual funds ideal for retail investors.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

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