Mutual funds

Mutual funds’ daily collections drop 70-90% in a week

Sandeep Singh

Posted online: Tuesday, July 10, 2007

New Delhi, July 9: The mutual funds industry is facing a crash in daily collections. Between July 2 and today, the falls across various funds have been in the range of 70-90 per cent in their respective retail segments. This is a knee-jerk reaction to an April 27, 2007, circular of the Securities and Exchange Board of India (Sebi).

Under the circular, beginning July 2, all investors in MFs — not just those investing Rs 50,000 and more — need to attach a copy of their permanent account number (PAN) card; till December 31, 2007, an application proof would be accepted.
The funds are now worried. The two largest ones in the public sector and private sector, for instance, while accepting that the idea is good, are apprehensive about its immediate impact. Says UTI Mutual Fund chief marketing officer Joydeep Bhattacharya: “Only 10-12 per cent of retail MF investors hold a PAN, others don’t have it and so it has a direct impact.” Adds Reliance Mutual Fund chief executive officer Vikrant Gugnani: “We are facing a significant impact on daily inflows.”
Though collections are suffering, market players are welcoming the initiative, though with a cauldron of caution. “It will make the securities market transparent and cleanly regulated but this dynamic shift should be done in a phased manner without impacting the industry,” opines Gugnani. “The infrastructure and implementation process needs to be thought through.” “This is a step in the right direction that will benefit everyone in the long-term, though it will have initial hiccups,” said Bhattacharya. “Finally, all financial products should have a single identification number.”
While the MF industry may be protesting, the fact is that the 70-90 per cent fall it says it is facing is in numbers, not value. According to the head of an asset management company (AMC), “The fall is in retail applications, particularly among investors with Rs 100-500 SIPs (systematic investment plans). The high net worth inflows remain more or less the same.” Small investors putting in small sums add up to 15-20 per cent of the total corpus,”
Some funds are working towards the expansion and penetration of PAN among investors. Several fund houses have tied up with PAN issuing agencies like UTI TSL, Karvy and Bajaj Capital to make PAN forms available along with the mutual fund scheme application form and get them collected as well.
According to Bajaj Capital head of operations Harish Sabharwal: “Six AMCs have currently tied up for issuing PAN cards with us and we are being able to convince investors to apply for PAN. While investors were hesitant earlier, the number of applications for PAN has shot up by 10 times now.”
What might come as a loss for mutual funds may benefit other financial institutions, particularly life insurance and banks as they do not fall under this regulation. Aggressive insurance players offering high-cost investment options like ULIPs will benefit, as investors move from MFs to these institutions in the short term.
‘What’s wrong with PAN?’
Making PAN mandatory for all investors while buying mutual funds is only the first step. According to sources in the Ministry of Finance, the PAN condition will be extended to insurance and banking products as well. “This is only the first step,” a source said. “We plan to extend the scheme to other investment products.”
But, “What’s wrong with PAN?” he asked. “The idea is to have a sound audit trail of all transactions. If someone has something to hide, he will not invest but why should others not go for PAN? It takes just 17 days to get a PAN these days and the I-T department is not going to be hounding them.”

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