Epitaph of the Mutual Fund industry: 2011 or 2012?

A few days back I wrote a piece saying the “The future of the mutual fund industry is very B…”. Now you could interpret this B as bleak or bright! I have already written about the bright part, now let me write a little about the bleak part.

So here it is….

Since August, 2009 there has been an outflow of about Rs. 7000 crores from the mutual fund industry. Obviously those who have shown past performance to place their own equity at inflated projections are worried. Well…buyer beware. By the way did the buyer not read the prospectus which said ‘Past non performance is not a proof of future non performance’ – well he should have gone through amfi training.

Mr. Bhave has a single point agenda – (like Churchill perhaps) to reduce the size of the midget mutual fund industry. So the next move will be to tax capital gains, dividends and interest as the same (helped by P Chidambaram’s tax code). This will mean corporates will now keep the money in the bank. Period. That will mean another Rs. 200,000 crores will leave the kitty for a start.

NO RETAIL business can survive on a gross margin of 1% – and Mr. Bhave keeps saying that mutual funds are retail products. Tickle me.

Mr. U K Sinha has said that even well performing funds are not doing well now. Seriously Mr. Sinha from when did performance matter? Have you heard of a well writing author or have you heard of ‘best-selling’ author? Most mutual funds run AUM contests – surely boys compare size -performance comes at a later age! Only one mutual fund runs a P&L others do not.

Mr. Sinha also told Sucheta Dalal that the exchange platforms are not good for the investors or the distributors. Hmmm …what about the platform that the mutual fund manufacturer’s club (well one mf called it the big fund houses closed club, well no comments) was to set up? Why was that abandoned?

The manufacturer’s club (which like some politicians is an organization which has no official power but has authority but no responsibility) has some good cash flows created by an ANNUITY of the IFA (who has to pay Rs. 1k a year)…’funeral expenses’ is it? Ifa galaxy, faaida, distributors forum,…all are worried about their income. Investors ki to….vaat lag gayi 🙂

So…well..just a few thoughts..

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3 Responses to “Epitaph of the Mutual Fund industry: 2011 or 2012?”

  1. I have been watching the last few months with respect to mutual fund industry with quite some interest. what beats me is that everybody (yourself included)seems to point fingers at Mutual Fund Industry but no body is speaking of mis-selling and underperformance rampant in Insurance Industry. Mutual fund advisors are painted as some sort of crooks out to get poor(?) investors money. It is strange that their 1-1.5% commission is being stared at by everybody but nobody thinks of 30% plus commission being earned by the insurance agent, and the advise this preferred species gives can at best be said to be horrible. What worries is the fact that by killing mutual fund industry, already they have made many mutual fund advisors to become insurance agents and by further steps like abolishing of capital gains benefit, dividend benefit, they will shut of a major part of our financially illiterate populace from the equity route. Despite some misgivings on the mis selling and unnecessary churning in mutual fund industry, I think we will all agree that for uninformed investor, mutual funds are the best route to invest in equities. Now either they will invest directly in equities and lose their precious capital or they will go via ULIPs since it seems to retain its tax free status. I stronlgy feel that the insurance industry has a very strong lobby and they are able to get their way. What else can we say about an industry where a seemingly responsible (sic) player like LIC takes 4 months to come out with an advertisement that their agents showing 25% plus returns for 20 years is not issued by them? I rest my case.
    Disclosure: I am a CFP and do fee based planning only, selling neither Mutual funds nor Insurance. So I don’t have any vested interest in either.

    would like to have your views on this.


    Sanjeev Bhatia

  2. Subra,

    As always bulls-eye.

    Its folks like you who bring in the kind of advise which is required. Hang in there.I’m personally bullish on the personal finance space. I totally agree with you on the subject.But lets not only blame the product manufacturers. The clients too are not too willing to explore the other options.Well continuous investor and customer education will be a the way forward ( one of the many options).

  3. The client – educated or otherwise, both are caught in the headlights. The reason is not far to seek. The regulator’s agenda (by action, not by articulation) seems to be more self-destructive than growth/evolution (for +ve outcomes)/consensus building oriented (thru sheer logic).

    Any financial services industry can grow/become stable/sustain only if there is fair competition vis-a-vis cartelisation. Though the insurance industry is older, the MF industry seems to be going through some ‘regulator enforced’ mutation – alas, there is no blue print available to the MoF(inance)/RBI/SEBI/IRDA etc. There is lack of any level playing field.

    The enormous long-term damage this is doing to the client vis-a-vis his long-term savings for retirement etc. will show up, especially for those who are in the 50+ category – retirement is less than 10 yrs. away and inflation is very high. God save these souls.

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