Difficulties are a part of everyone’s life. Some people try and avoid difficulties in one way or the other while the brave ones face the difficulty head-on in order to over the same. The stance adopted by the brave ones help them to taste success in the long run while those who try and escape difficulties never achieve anything remarkable in their life. The noteworthy aspect of a brave individual’s life is the ways and means adopted by the individual to overcome the challenges and difficulties placed by life before him or her.
Similarly, the mutual fund industry too, is going through a rough patch (rather a long one), since the entry load ban in August 2009. Various Asset Management Companies (AMCs) have adopted different means to cope up with the difficult times. Some have shut shop and merged with their counterparts, some have embarked on a different cost-revenue model while some have carried on with their distributor free model. But despite different measures undertaken by different AMCs, there is struggle for attracting more and more investors to the mutual fund industry.
Citing the above teething troubles for the mutual fund industry, the capital market regulator – Securities and Exchange Board of India (SEBI) has proposed a few long-term measures, which in the view of SEBI will help revive the fortunes of the mutual fund industry. Some of the measures proposed by the SEBI are as follows:
- Tax structure to attract long term investors
- Lowering of taxes and stamp duties
- Incentives for selling mutual fund schemes in tier II or III cities
- Disincentives to stop the phenomenon called churning or frequent switching of schemes by distributors and fund houses
- Higher minimum capitalisation norms to have serious players in the asset management business
- A comprehensive mutual fund policy to be drawn by the Government
We are of the view that, the mutual fund industry which constitutes about 8% of the country’s GDP has an immense potential for further growth. However, for growth to take-off there needs to be robust platform to encourage long-term investment habit amongst investors. Also, one of the most important aspects is to impart adequate education amongst the masses about the advantages of mutual fund investing. At present lack of awareness is acting as a major hurdle for the mutual fund industry to grow at faster pace.
The measures envisaged by SEBI if implemented in the right spirit may help revive the fortunes of the mutual fund industry. But since the mutual funds remain a push product, a robust cost structure is imperative for the growth of the industry. We also think a fee based model should be encouraged as it would be beneficial to both the investors as well as the distributors. Moreover, to turn mutual fund investments from a push product to a pull product, educating the masses is the only way out.