Finance News

'Fund houses are finding it difficult to collect money'

Though the mutual fund industry has been experiencing a dry spell in terms of money inflow of late, Association of Mutual Fund in India (AMFI) chairman A P Kurian says that it has a great future. In an interview with George Mathew and Swarup Chakraborty, Kurian talks about the mutual fund growth story, fall in collections, discrimination when compared to insurance, and the road ahead. Excerpts:

Asset management companies (AMCs) are having a tough time now, is it worrisome for investors?

The industry had been growing at a rate of 50-60 per cent. However, from January this year we are seeing a deceleration in growth. The market meltdown not only affected assets under management (AUM) but dampens investor sentiment. This is worrisome. The gross inflow of money is not increasing as it did in the past.

Is the industry seeing redemption pressure from small/ retail investors?

Thankfully, retail investors have maintained their cool, but investors who participated in a big way before the market meltdown have gone slow. Earlier, all new fund offers got very good response; the Reliance Natural Resource Fund collected around Rs 5,000 crore through its NFO. But now, due to lack of participation, fund houses are finding it tough to collect money.

How is the industry coping with the sharp redemptions in July as institutional investors pulled out?

It is a routine phenomenon. Whenever the market falls and institutions feel that returns on their investments would not be proportionate to expectations, they pull out. This time redemption pressures have been acute as corporates are finding it tough to get credit from banks at affordable rates. But the silver lining is that the number of retail investors has been increasing across the country.

What are the steps that the industry is taking to increase retail participation?

The industry is working towards making inroads in the hinterland. Through systematic investment plans (SIPs), MF houses have been attempting at getting the savings of retail investors. Recently, Birla Sunlife MF, Reliance MF and HDFC MF, very successfully, managed to evince investors' interest in taking the SIP route. As of June 30, the number of SIP accounts had grown to 32 lakh.

Do you think mandatory PAN is posing a problem in getting better retail response?

It is an issue we have been raising for the last two years. However, nothing seems to have happened. Now, I would say, people are adjusting to PAN. We do not have data that mandatory PAN has stopped investors from parking their savings in MFs as the AUM of the industry has been continuously rising. But at the same time, investors in small cities are not getting the opportunity to participate due to this technical issue.

Don't you think MFs discriminate between small investors and high-value investors by not charging any entry load?

We should not forget that AMCs are here to do business. When they deal with small investors the money that is collected is not in proportion to the operational costs. They have to process many cheques and allot units to so many accounts whereas a high-value investor is like a bulk buyer in whose case cost of running operations is much lower.

What is your projection of growth for the industry over the next 5 years?

The industry is poised to grow by 30-35 per cent per year. Going by this growth rate, the assets under management should double during this period.