U K Sinha (remember he has an indexed pension and therefore has no need to invest at all) made a statement that India has the most expensive mutual funds in the world. Sounds odd because he did nothing to correct it when he was the CEO at UTI mutual fund or when he was at SEBI. It is quite common for retired bureaucrats to sound like a tiger after quitting while behaving like a cat while in service.

Indian mutual funds can be divided into 2 parts – the top 5/6 which own 80%+ of the market and are very profitable and the next 37 which barely eke out a living. Clearly it is a volume game – and the charges are terribly high for people who have the volume. The rates are very low for those who are new entrants, and the new entrants are trying a lot of new stuff to build. It is a terrible industry for a new comer. We need a JIO moment in the MF industry, and I seriously wish Mukesh Ambani makes a foray into financial services. We need him very badly. Not in 2022, but in 2019.

The regulator and ex regulators have to realize that price drop does not happen because of the regulator. The equity brokerage UPPER LIMIT set by SEBI is 2.5% – but the rates prevailing in the market for the RETAIL investor is south of 0.5%.

We have seen that the air tickets are priced almost at cost when fuel prices are high. The Indian customer is notoriously prices sensitive.

What has helped the industry (read those with 80% market share) is the amazingly difficult route for a foreign fund house to start and run in India. Vanguard has not tried. Fidelity was among the many that ran away. Franklin Templeton is braving it – it is making money because it has a good team, good performance, etc. and is using the local pool for its international operations. I am sure it is struggling in the parent market.

On a completely different plane look at what is happening in the USA. Fidelity has launched 2 INDEX FUNDS at zero cost. Yes zero cost. Is zero cost good? well it is surely better than 0.04% which was earlier the cheapest fund. Fidelity killing its ego after pooh poohing index funds for 4+ decades is a big move. All the swagger of flaunting star fund managers – Peter Lynch of course the leader has finally ended. What this means for Vanguard and Mr. Bogle is a clear moment of saying “hey we told you this in the 1980s did we not”. Clearly Fidelity or its ilk will hope to use this as a bait to get the investor into the house, and then it could get them to buy the more expensive funds. Great it might even work in the USA, but the Indian customer will not fall for it. In Jaipur I found a shop which SELLS ‘plane plate’ a packed food looking EXACTLY like a food tray served in the plane. People carry it for eating in the aircraft. I am sure there is a price arbitrage. In a long bear market how will Fidelity deal with such stuff is unknown, but the cost reduction will come from competition. No, cartelisation will not work in the USA like it is working in India.

In India even though ETF and low cost Index funds do exist they are not yet threatening the industry. Like I said earlier we need a JIO moment. None of the new players are in the index space. Invesco, Dhfl, Mirae, are all in the managed fund space. The old fund houses of course have no interest in rocking the boat. One of the fund houses will have to. Who is it going to be?

The smaller fund houses have to create tons of alpha before people will consider shifting from say a Hdfc to an Invesco, Mirae, Quantum or PPFAS. The alpha could come from costs, but this will hardly be publicized by the media. Yes it is the job of the social media perhaps. The regulator listens to the top 5, and it is rare to find the smaller sized players get a seat in the powerful regulator seats.

The distributor community is not heard ENOUGH by the regulator. FIFA, arguably the biggest body representing the distributors has a study which shows India to be a low cost location and not a high cost one. Morningstar has its own method of saying India is not. However I am not sure that one can compare a mature market like the US to a developing market like India. If India has to grow its industry it needs 500,000 new, active Independent Financial Advisers, and the regulator has to do 1000 Investment Awareness Programs (like Samruddhi which Nism does) every day in different parts of the country. All this penetration will not come free. We are in a very different stage vis a vis the USA.

Remember I have a credit card with a limit of Rs. 10L, an annual fee of Rs. 10k, and a life time fee waiver because I pay my phone bills and electricity bills through the card. India is a tough market. Bloody tough market.

“Industry” for the regulator is more about the big asset gatherers and not so much about the other stakeholders. Some of the other “stakeholders” are dependent on the asset gatherer’s advertising support. So the relationships are incestual. We need Vanguard or Mukesh Ambani. Soon.

Motabhai sambdocho? Aag laagi che jaldi aavo.

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  1. The Balanced funds invest their money both in Equity and Debt. These funds are less volatile than pure equity funds. They are expected to deliver superior returns over a period of more than three years.

  2. After LTCG has kicked in, there is no use investing in balanced fund. Might as well invest in equity funds that will give higher returns over long period of time and use debt funds for debt component.

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