The ban on entry load for mutual funds, which took effect in August 2009, has not been as disastrous for mutual fund sales or for agents selling mutual funds, as was feared.
Not only have retail investors returned in good numbers to mutual funds through the systematic investing route in the year after the ban, the individual distributors who were selling funds did not suffer a big setback in their share of investors' accounts. These are the findings from the data for the period from August 2007 to July 2010, from a mutual fund registrar.
When stock markets were at a high in January and February 2008, mutual funds added new accounts of about 14 lakh a month.
Of this, retail investors, on an average, opened 6.8 lakh accounts. But once the markets tumbled, new account openings fell drastically by over 71 per cent to 2 lakh accounts.
Retail accounts accounted for much of this decline, as accounts opened by high net worth investors (HNIs) dropped by just 24 per cent.
However, data show that new account additions have rebounded in the year since the ban. Between August 2009 and July 2010, they were up by 44 per cent to reach about 3 lakh folios.
Data also throw up another healthy trend, that of retail investors opting to make commitments for longer periods.
From previously committing funds for 24-36 months, the average tenure of SIPs has increased to 61 months in recent times. This is a sign of the longevity of new accounts entering the system.
Independent data from the industry also show that in recent months, more investors are choosing to take the systematic investment plan (investing through monthly instalments rather than one lump-sum) route to enter mutual funds.
SIPs accounted for only 16 per cent of the new folios created about a year ago, but now make up 43 per cent of the new accounts created. The other surprising trend emerging from the data is that individual agents selling funds (called independent financial advisors or IFAs) have not really abandoned mutual funds after the entry load ban, as feared.
Folio additions
IFAs have brought in a total of 9.3 lakh folios during August 2009-July 2010, after the ban. This gives them a 29 per cent share of the new accounts created in this period. That's not lower than the 32 per cent share they held (16.4 lakh folios out of 51.2 lakh) in August 2007- July 2008, before the ban.
National distributors, usually financial service firms, have seen a sharp dent in their market shares after the entry load ban. Though they continue to be the largest contributors to new accounts, their market share slipped from 42 per cent in August 2007 – July 2008 to 34 per cent in August 2009 to July 2010. Public sector banks have made the most of this situation, bagging an 11 per cent share of new business, up from 4 per cent before the ban.
Investors also continued to rely mainly on distributors to buy mutual funds, with the proportion of direct sales (funds to investors) declining from 5.7 to 5.3 per cent in this period.
Source: http://www.thehindubusinessline.com/industry-and-economy/article1682826.ece?homepage=true
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