The recent market rally may have amused a lot of investors. However, the mutual fund industry saw their investor base erode by over 11,000 equity folios a day in the first half of the fiscal year 2012-13. The September rally in the stock markets has proved disastrous for the Indian mutual fund industry as far as their hard-earned retail investors' base is concerned. On account of profit booking at every upswing in the equity markets, the mutual fund industry received redemption request worth Rs 6,741 crore as against fresh investments of a mere Rs 3,182 crore (as seen in September 2012). With this, equity investors' base for fund industry got shrunk by over 2 million in just six months, which interestingly is higher than what was witnessed in the entire previous financial year.
Citing this plight of the mutual fund industry, the industry lobby - Association of Mutual Funds in India (AMFI) has set up a committee to recommend on pension scheme products by mutual fund houses in order to attract long-term money. AMFI may further speed up the process of developing pension schemes under the mutual fund banner at a time when the insurance sector continues to grapple with the regulator’s guidelines on pension plans.
The committee set up by the AMFI has made initial recommendations which, if implemented, will help fund houses compete with both the Government’s New Pension Scheme (NPS) and pension plans from insurance companies. For instance, all MF schemes are proposed to have an option of pension plans with a lock-in till 58 years of age. The committee has recommended that the cost of entering the scheme should be lower or same as the NPS. At present, for opening an NPS account, the central record keeping agency charges Rs 50, another Rs 280 for maintenance and Rs 6 a transaction. The asset servicing charge is 0.0075% and fund management charge is 0.0009%, annually. The proposal is for initial subscription cost to be Rs 40, lowered to Rs 20 for subsequent transactions and tax benefits for investors at the time of investing and at the time of final maturity.
Another interesting facet of the proposal from the AMFI is likely to be portability. Under portability, It has been proposed investors should be allowed to shift from one scheme to another within the same fund house and even between different fund houses. This will give lot of options to retail investors if the proposals are accepted by MF houses.
We are of the view that, the proposal to rejuvenate pension plans under the mutual fund banner will be beneficial for the industry as well as the investors. Investors will have a wide variety of choice for investing their hard earned money to create a corpus for their yester years. And with professional fund management expertise provided by the mutual fund houses, investors can also expect better returns from such mutual fund schemes in comparison to the Government’s New Pension Scheme (NPS).
Indeed, if the proposal for the pension option under the mutual fund scheme is implemented as proposed above, the investors will have a better option in terms of generating annuity post their retirement age.