There is reason to believe that trustees have not been doing their job, otherwise so many loss- making schemes would not be allowed to exist
The mutual fund industry has been under stress for the past three years, as investors are not putting their money into mutual funds. The industry blames the regulator, the Securities and Exchange Board of India, for scrapping the entry load in 2009.
Distributors used to be paid from this amount, so with commissions contracting, the number of distributors fell drastically. They preferred to push insurance products where commissions were higher. But this is a minor issue in the larger picture of this industry’s distress.
Investors have been treated shabbily and have lost confidence in mutual funds because of their track record. One study shows 50 per cent of equity schemes were performing below their benchmark, and there is no justification for this. The investors are encouraged to invest in stock markets through mutual funds, as MFs are supposed to have highly qualified and well-paid fund managers. Investors were naturally disillusioned, and this has resulted in assets under management of the funds declining significantly in the past three years. This has now even come to the Prime Minister’s notice: it is hoped there will now be a serious look into the industry’s functioning with all stakeholders, like investor groups, involved in the discussions and not just industry representatives. At present, it is a cosy club that is looking into the problems facing the industry.
The role of trustees of the asset management companies is to monitor the schemes and ensure that the fund managers perform. There is reason to believe that they have not been doing their job, otherwise so many loss-making schemes would not be allowed to exist. The AMCs make money without much investment on their part as they are paid their fees for managing the assets, regardless of whether the investments bring in results or not. Of the total assets under management, a minuscule 20 per cent is put into equity, while the rest are in debt and other non-equity instruments. For example, if the assets under management are Rs 6 lakh crore, Rs 1.20 lakh crore would be in equity, with about 85 per cent of retail investors involved. The rest would be in debt for the high net individuals and corporate outfits. So why not talk of the other 80 per cent as well?
The industry has recommended to Sebi an increase of 0.2 per cent in the expenses that they are permitted to charge the investor, so now it will prove even more expensive for the investor. There is also a suggestion that MFs should be permitted to have pension schemes with enough safeguards put in by the government. It is said MFs in the United States took off only after retirement money came into the industry.
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