Mutual Funds
Equity fund flows: Another round of exodus in July

Despite a pick up in sales and two new fund offers (NFOs), equity funds failed to register a net inflow due to heavy redemptions

The two new fund offers (NFOs) launched in July 2012 bought in as much as Rs306 crore. This took the total sales for the month to Rs3,311 crore, according to data released by the Association of Mutual Funds in India (AMFI). However, redemptions increased by 27% over the previous month to Rs4,260 crore leading to a net outflow of Rs949 crore. The Asset Under Management (AUM) of equity schemes came down by 0.79% or Rs1,416 crore to Rs1.78 lakh crore over the one-month period while the Sensex declined by 1% during this period.
The last seven months have witnessed a total outflow of Rs4,548 crore with just two months of positive inflows. In the same period there have been as many as six equity NFOs launched, bringing in a paltry Rs410 crore. Investor participation is clearly declining. Total sales for the first seven months of 2012 amounted to Rs24,448 crore, down by 34% from Rs36,781 crore in the previous year.
Recently the Securities and Exchange Board of India relaxed the Know Your Customer (KYC) norms for mutual fund investments up to Rs50,000. As per the new norms an investor can invest up to a ceiling of Rs50,000 per year in each Asset Management Company (AMC) without a Permanent Account Number (PAN) compared to the earlier norms which had a limit of Rs50,000 across all AMCs. These norms are also applicable to Systematic Investment Plans (SIPs) of mutual funds, as well. Experts have been quoted in media reports saying that this move will benefit the industry. But how many small ticket investors would want to put their savings in a risky asset class as equities.
A few months back Moneylife had pointed out that there are no takers for SIP (SIP: No takers?). There have also been news reports that investors have discontinued at least 1.66 million SIP accounts in 2011. Why have so many investors discontinued their SIPs? Therefore, the problem does not lie only in the KYC norms, there are other factors which the regulator has failed to find out.
There are also reports that the regulator will consider to reintroduce the 2% entry load to revive mutual funds at its board meeting on 16th August. It's been almost three years since SEBI abolished entry load. Noticing a big drop in inflows, sometime ago SEBI decided to introduce a transaction fee. This too didn't go down well with distributors which according to a consulting firm only 16% of distributors have opted for charging transaction fee. However, from the disclosure of commissions of distributors one can see that their commissions have actually increased. (Mutual Fund Commissions: Foreign banks lead once again, other top distributors lag behind). Therefore will the reintroduction of entry load help much? Big distributors will find ways and means for them to earn commissions and survive. But who will take care of the investors needs? SEBI would have to restore investor confidence first by creating stringent norms against mis-selling and other malpractices.




Vikas Gupta

4 years ago

I totally agree with MoneyLife that first of all, misselling has to be strictly stopped.

Plan Panel to revisit health chapter in 12th Plan after furore

The lower allocation of 1.58% for the health sector goes against Prime Minister Manmohan Singh's directions to the plan panel to raise resources in a way that public spending on health increases to 2.5% of GDP

New Delhi: The Planning Commission will revisit the draft health chapter of the 12th Plan after experts raised concerns over some of its proposals and the miserly allocation of 1.58% of GDP for the sector, reports PTI.
Planning Commission deputy chairman Montek Singh Ahluwalia has given this assurance to health experts after they raised objections to the way some of its proposals were drafted in the Draft 12th Plan on health sector.
The Health and Family Welfare Ministry has separately flagged its concerns over the draft Plan to the Planning Commission and demanded a higher allocation for health sector.
Ahluwalia asked the experts, some of whom were part of its own expert group on universal health care, to give their suggestions by Monday and assured them that the same will be taken on board.
Sources say the Plan Panel has assured experts that the draft plan would be revisited and redrafted.
The lower allocation for the health sector goes against Prime Minister Manmohan Singh's directions to the plan panel to raise resources in a way that public spending on health increases to 2.5% of GDP over the five years of the Plan period.
In the draft 12th Plan on health, to be finalized by August-end, the allocation for the sector has been proposed at 1.58% of GDP.
The proposal has met with stiff resistance from the expert group on universal health coverage which the Planning Commission itself had set up in 2010 to recommend ways to universalize public health delivery in India.
Chairman of the expert group K Srinath Reddy said they had met the Deputy Chairman of the Planning Commission and expressed concern over low allocations for the sector. He said the Commission had asked the experts to submit written suggestions for required changes in the draft chapter.
"The Commission has assured us that they would have a review and relook at the draft chapter on health and all our suggestions will be taken on board," Reddy said.
India's public spending on health as a proportion of GDP is among the lowest in the world. While Sri Lanka spends 1.8% of GDP, figures in China and Thailand are 2.3% and 3.3%, respectively. The corresponding figure for the US is in excess of 7% while European nations like the UK, Spain, Germany, Italy spend 6.5-8% of their GDP on healthcare.
Experts also fear privatisation of health sector according to certain provisions in the 12th Plan draft, which have been objected to and the Plan panel has assured them of redrafting the same.
The Commission has cited financial constraints as the reason for the lower allocation for health sector and clarified that privatisation of the sector is not its intention.
The Plan document recommends an increase in public expenditure on health from the present one% to 1.58% of GDP.
Another area of concern is that the document proposes that the central government's share in additional health expenditure would be less than half of what the states would contribute and that the Centre's contribution would be conditional to that of the states.


Environment Ministry says mobile towers affecting wildlife

In an advisory, the Environment Ministry has said that there is an 'urgent need' to refine the Indian standard on safe limits of exposure to electro-magnetic radiations


New Delhi: Environment Ministry feels radiation emitted by mobile towers has ill effects on wildlife, especially birds and bees, and has asked the Department of Telecommunications (DoT) not to permit such structures within one-km radius of each other, reports PTI.


In an advisory, the Ministry has said that there is an 'urgent need' to refine the Indian standard on safe limits of exposure to electro-magnetic radiations (EMR).


Till it is reformed, "a precautionary approach shall be preferred to minimise the exposure levels and adopt stricter norms possible, without compromising on optimum performance of the networks," it said.


It noted that the radiations could be having varying negative impact on wildlife, particularly birds and bees.


Accordingly, it asked the DoT to ensure that new mobile towers are not constructed within one-km radius of the existing ones "so as not to obstruct flight path of birds, and also not to increase the combined radiations from all towers" in the area.


"To prevent overlapping of high radiation fields, new towers should not be permitted within a radius of one kilometre of the existing towers. Sharing of passive infrastructure if made mandatory for Telecom Service Providers can minimise need of having additional towers," it said.


The Ministry asked the DoT that location and frequencies of cellphone towers and other towers emitting EMR, should be made available in public domain.


"This can be at city/district/village level. Location- wise GIS mapping of all cellphone towers should be maintained which would, inter alia, help in monitoring the population of birds and bees in and around the mobile towers and also in and/or around wildlife protection areas," the advisory said.


The advisory has been issued on the basis of an expert committee study on the possible impacts of communication towers on wildlife and bees. The panel was constituted by the Environment Ministry in 2010.


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