'The need to beat inflation will revive retail interest in MFs'
Rajiv Bajaj, Vice-chairman and managing director, Bajaj Capital, talks to Dipak Mondal on why retail investors shy away from investing in mutual funds.
Rajiv Bajaj, Vice-chairman and managing director, Bajaj Capital, talks to Dipak Mondal on why retail investors shy away from investing in mutual funds.
Retail participation in mutual funds, especially in the equity-oriented schemes, has been declining. Are you witnessing a similar trend in your sales?
Being one of the larger players in the industry, we are not immune to industry trends. There was indeed a lack of retail investor interest in equity mutual funds in the first half of 2010, but the situation has improved significantly in the second half, particularly in the July-September 2010 quarter. Barring any developments that lead to a shake-up in investor sentiment, we expect this trend to continue in 2011 as investors finally wake up to the fact that they need their investments to at least beat inflation and that debt alone is not going to do that.
What are the primary reasons for retail investors staying away from mutual funds?
Mutual funds largely remain a push product rather than a pull product. It's a rare instance when an investor comes and asks us to invest in mutual funds. This can be attributed to lack of awareness and financial illiteracy. Since abolition of entry loads on 1 August 2009, all entities, including AMCs and advisers, have lesser funds for 'investor outreach'. Hence, retail participation has suffered. Financial planning is no doubt the best solution. Though mutual funds are yet to penetrate the retail investor category to the desired level, we remain bullish about the future as there is a greater acceptance for financial planning among investors.
Are the distributors averse to reaching out to retail investors because of lack of incentives? As a large distributor, how are you approaching this problem?
I do not know how far it is true, but clearly at our end, we look at the assets under advice (AUA) rather than short-term incentives. Historically, retail investors are known to be more stable and long-term in nature. As we prefer to maintain a stable market share in the industry (measured by AUA), we are actually more keen to reach out to retail investors. In order to tide over concerns on short-term incentives, we had launched fee-based financial planning and advisory services, which should help us compensate for the losses in short-term revenue. If clients see value in our services, they will pay us a fee.
Equity-linked Savings Schemes (ELSS) are the best initiators for investments in mutual funds but after the Direct Taxes Code (DTC) they will become irrelevant. How big a blow is this for the industry?
ELSS funds form 13 per cent of the total equity AUM of the industry and 4 per cent of the total aggregate (includes cash, debt and equity) AUM. Thus, even in the worst-case scenario, the impact is likely to be limited to 4 per cent of the total aggregate AUM. Though the impact of DTC on the future of ELSS funds is likely to be significant and they may become largely irrelevant from the point of view of saving tax, they will continue to be the preferred investment vehicle for long-term investors as they continue to yield returns that are better than those from PF/PPF and NPS over 5-10 years.
Retail participation in mutual funds, especially in the equity-oriented schemes, has been declining. Are you witnessing a similar trend in your sales?
Being one of the larger players in the industry, we are not immune to industry trends. There was indeed a lack of retail investor interest in equity mutual funds in the first half of 2010, but the situation has improved significantly in the second half, particularly in the July-September 2010 quarter. Barring any developments that lead to a shake-up in investor sentiment, we expect this trend to continue in 2011 as investors finally wake up to the fact that they need their investments to at least beat inflation and that debt alone is not going to do that.
What are the primary reasons for retail investors staying away from mutual funds?
Mutual funds largely remain a push product rather than a pull product. It's a rare instance when an investor comes and asks us to invest in mutual funds. This can be attributed to lack of awareness and financial illiteracy. Since abolition of entry loads on 1 August 2009, all entities, including AMCs and advisers, have lesser funds for 'investor outreach'. Hence, retail participation has suffered. Financial planning is no doubt the best solution. Though mutual funds are yet to penetrate the retail investor category to the desired level, we remain bullish about the future as there is a greater acceptance for financial planning among investors.
| "Investors prefer taxsaving plans to provident funds as they yield higher returns." |
I do not know how far it is true, but clearly at our end, we look at the assets under advice (AUA) rather than short-term incentives. Historically, retail investors are known to be more stable and long-term in nature. As we prefer to maintain a stable market share in the industry (measured by AUA), we are actually more keen to reach out to retail investors. In order to tide over concerns on short-term incentives, we had launched fee-based financial planning and advisory services, which should help us compensate for the losses in short-term revenue. If clients see value in our services, they will pay us a fee.
Equity-linked Savings Schemes (ELSS) are the best initiators for investments in mutual funds but after the Direct Taxes Code (DTC) they will become irrelevant. How big a blow is this for the industry?
ELSS funds form 13 per cent of the total equity AUM of the industry and 4 per cent of the total aggregate (includes cash, debt and equity) AUM. Thus, even in the worst-case scenario, the impact is likely to be limited to 4 per cent of the total aggregate AUM. Though the impact of DTC on the future of ELSS funds is likely to be significant and they may become largely irrelevant from the point of view of saving tax, they will continue to be the preferred investment vehicle for long-term investors as they continue to yield returns that are better than those from PF/PPF and NPS over 5-10 years.
