Mutual Funds adopt all means to entice investors
The mutual fund industry is adopting Kautilaya's management principles of Saam, Daam and Dand to lure and retain investors.
The fund houses are exploring all possible means to attract new investors and retain the existing ones. On one hand the new Securities and Exchange Board of India (Sebi) regulations are forcing them to use the dand principle by raising exit load on the schemes and on other hand, using the Saam principle they are launching new schemes focusing on infrastructure stocks to optimize their returns and raise their asset base. The daam principle comes in focus with huge dividend announcements, aiming at enticing investors' money towards mutual funds.
In the past one month, many fund houses have hiked exit loads in their equity and debt schemes. The fund houses adopted this measure to discourage investors from exiting the schemes and re-investing when the Sebi's decision to ban entry load come into force from 1 August 2009.
In an investor friendly move, Sebi took decision of banning entry load for all schemes. On exit load charged to the investor, a maximum of 1% of the redemption proceeds would be maintained in a separate account that could be used by the asset management company to pay commissions to distributors and take care of other marketing and selling expenses, Sebi said, adding that any balance would be credited to the scheme immediately. It shall be applicable by 1 August 2009.
Fund houses like Reliance Mutual Fund (MF) revised the exit load from zero to 2% for Reliance Regular Savings Fund, an open-ended scheme, in case of redemptions before one year. UTI MF hiked the exit load from 0.75% to 3% under UTI Mahila Unit Scheme, in case of exit before 1 year.
Bharti Axa will now charge 2% exit load for investments of less than Rs 5 crore in its Regular and Eco Plan, an equity fund if redeemed within 1 year from the date of allotment. It used to charge 1% for redemptions before six months. Birla SunLife, HDFC MF, ICICI Prudential MF, ING MF, Kotak MF, LIC MF, Tata MF and IDFC have also revised loads for specific schemes.
The other side of the coin says that the Sebi's ban on entry load is likely to reduce the number of fresh NFOs and might incite fund houses to rush into launching the already cleared NFOs before the 1 August 2009 deadline. Since last week of June 09 till date as many as 7 NFOs have come into the market and many are waiting to get clearance from Sebi and hit the floor.
However these NFOs may not be able to garner good subscription amount as investors may wait until 1 August to invest. Also the entry load ban may make NFOs more unattractive among distributors and thus the number of new NFOs may make down drastically. As many as 16 funds and lined up for clearance from the regulator considering the months of June and July 09. Meanwhile three schemes' viz. Sahara Super 20 Fund, Mirae Asset Short Term Bond Fund and Franklin Build India Fund have their NFO running currently.
To attract investors and cash on the benefits of increased government focus on infrastructure development the fund houses have launched many schemes focusing on infrastructure sector. In June and July 09 till date around 6-7 funds have filed their offer document with Sebi focusing on infrastructure and rural growth.
The fund houses are free flowing dividends to hold back investors in the scheme on the back of volatile markets. The number has increased to a record of more than 250 schemes announcing dividend in the month of June 09. With the improvement in market conditions and to revive investors' confidence the fund houses are showering dividends. The quantum of dividend ranged between 10%-60%. Tata Life Sciences & Technology Fund announced dividend of 20%. Similarly Franklin India Prima Fund offered tax-free dividend of Rs 6 per unit. Birla Sun Life Basic Industries Fund announced dividend of 50%. Recently SBI MF has also announced dividend of 50% in Magnum Sector Funds Umbrella (MSFU)-Contra Fund.
Thus by applying all means the fund houses are assaying to lure investors besides revitalizing their interest in the schemes.
The mutual fund industry is adopting Kautilaya's management principles of Saam, Daam and Dand to lure and retain investors.
The fund houses are exploring all possible means to attract new investors and retain the existing ones. On one hand the new Securities and Exchange Board of India (Sebi) regulations are forcing them to use the dand principle by raising exit load on the schemes and on other hand, using the Saam principle they are launching new schemes focusing on infrastructure stocks to optimize their returns and raise their asset base. The daam principle comes in focus with huge dividend announcements, aiming at enticing investors' money towards mutual funds.
In the past one month, many fund houses have hiked exit loads in their equity and debt schemes. The fund houses adopted this measure to discourage investors from exiting the schemes and re-investing when the Sebi's decision to ban entry load come into force from 1 August 2009.
In an investor friendly move, Sebi took decision of banning entry load for all schemes. On exit load charged to the investor, a maximum of 1% of the redemption proceeds would be maintained in a separate account that could be used by the asset management company to pay commissions to distributors and take care of other marketing and selling expenses, Sebi said, adding that any balance would be credited to the scheme immediately. It shall be applicable by 1 August 2009.
Fund houses like Reliance Mutual Fund (MF) revised the exit load from zero to 2% for Reliance Regular Savings Fund, an open-ended scheme, in case of redemptions before one year. UTI MF hiked the exit load from 0.75% to 3% under UTI Mahila Unit Scheme, in case of exit before 1 year.
Bharti Axa will now charge 2% exit load for investments of less than Rs 5 crore in its Regular and Eco Plan, an equity fund if redeemed within 1 year from the date of allotment. It used to charge 1% for redemptions before six months. Birla SunLife, HDFC MF, ICICI Prudential MF, ING MF, Kotak MF, LIC MF, Tata MF and IDFC have also revised loads for specific schemes.
The other side of the coin says that the Sebi's ban on entry load is likely to reduce the number of fresh NFOs and might incite fund houses to rush into launching the already cleared NFOs before the 1 August 2009 deadline. Since last week of June 09 till date as many as 7 NFOs have come into the market and many are waiting to get clearance from Sebi and hit the floor.
However these NFOs may not be able to garner good subscription amount as investors may wait until 1 August to invest. Also the entry load ban may make NFOs more unattractive among distributors and thus the number of new NFOs may make down drastically. As many as 16 funds and lined up for clearance from the regulator considering the months of June and July 09. Meanwhile three schemes' viz. Sahara Super 20 Fund, Mirae Asset Short Term Bond Fund and Franklin Build India Fund have their NFO running currently.
To attract investors and cash on the benefits of increased government focus on infrastructure development the fund houses have launched many schemes focusing on infrastructure sector. In June and July 09 till date around 6-7 funds have filed their offer document with Sebi focusing on infrastructure and rural growth.
The fund houses are free flowing dividends to hold back investors in the scheme on the back of volatile markets. The number has increased to a record of more than 250 schemes announcing dividend in the month of June 09. With the improvement in market conditions and to revive investors' confidence the fund houses are showering dividends. The quantum of dividend ranged between 10%-60%. Tata Life Sciences & Technology Fund announced dividend of 20%. Similarly Franklin India Prima Fund offered tax-free dividend of Rs 6 per unit. Birla Sun Life Basic Industries Fund announced dividend of 50%. Recently SBI MF has also announced dividend of 50% in Magnum Sector Funds Umbrella (MSFU)-Contra Fund.
Thus by applying all means the fund houses are assaying to lure investors besides revitalizing their interest in the schemes.
