Over the six-month period from April 2013 to September 2013, Independent Financial Advisors (IFAs) contributed the maximum (37%) to equity mutual fund sales
Most Independent Financial Advisors (IFAs), a ‘small’ mutual fund distributor community, were worried that they would lose business with the launch of direct plans of mutual funds. Many even complained that few of their clients have shifted to direct plans. However, IFAs, who cater mainly to small investors, have not only been successful in creating new mutual fund accounts in beyond the top 15 cities (B15 cities) they have done comparatively well in the top 15 (T15) cities as well. From their contributions to new systematic accounts created, it can be said that IFAs are not only promoting one time investments, but are encouraging regular savings as well. IFAs increased their share of equity mutual fund sales to 37% in H1FY14 from 33% in H1FY13.
Taking all mutual fund categories into consideration, IFAs contributed the highest share of 33.25% to new accounts created for bullet investments and 30.19% to new SIP accounts created between April 2013 and September 2013, according to data from CAMS, a registrar and transfer agent for mutual funds which accounts for 60% of the industry data. Overall, they contributed 31.74% to the total number of new accounts created. The next highest were other banks with a share of 23.74% in the six month period.
Equity Mutual Fund Sales
Despite a marked increase in the contribution of direct plans to equity mutual fund sales, IFAs too, managed to increase their share, even though the quantum of sales declined. The share of direct plans in equity mutual fund sales rose to 13% in H1FY14 from 5% in H1FY13. IFAs, managed to increase their share to 37% in H1FY14 from 33% in H1FY13. Banks witnessed a sharp decline, with their share falling to 18.52% from 26.08% over the same period. In H1FY14, national distributors had a share of 22%, while PSU banks had the lowest share of 2.33%.
In the T15 cities, IFAs took the lead for the top share in equity mutual with 31% in H1FY14 from 27% in H1FY13 surpassing national distributors and other banks which commanded a higher share for the same period the previous year. In the B15 cities, though IFAs still contribute more than half to the total equity mututal fund sales, their share fell marginally to 54% in H1FY14 from 55% in H1FY13. In these cities, national distributors increased their share to 16% from 11% in the same period last year.
SIP accounts created
IFAs also have the highest share for the number of new mutual fund SIP accounts created in H1FY14. In T15 cities IFAs have a share of 28% in the total new SIP accounts, marginally higher than national distributors which command a share of 27%. In B15 cities where IFAs have the strongest presence, they contributed 33% to the total number of new mutual fund SIP accounts created, while other banks and national distributors had a share of 22% and 21% respectively.
In T15 cities, other banks contributed the highest to new accounts created for lumpsum (or bullet) investments. IFAs were the second highest contributors with a share of 27%. In B15 cities, IFAs once again took the lead with a share of 46%. National distributors were the closest with a share of just 16%.
Despite this huge contribution from IFAs, the regulator continues to ignore this ‘small’ distributor community by coming up with regulations that harms their business. (Read: Mutual fund regulations: Who contributes the most to equity inflows is overlooked) Many IFAs have been asking for a ban on upfront commissions. Moneylife has highlighted in many articles in the past where distributors have resorted to excessive churning to earn higher commissions. Chilukuri KRL Rao, a small distributor from Hyderabad, has drawn our attention to the ground-level practices that hurt investors and smaller distributors. He says, “Small distributors who cater mainly to the small retail investors are willing to work even with low trail commissions due to their cost efficient business model. But, the main hindrance to the growth of the industry seems to be the way these incentives are being paid to a distributor.”
In a recent article, (Read: Equity mutual funds report rising sales outside top 15 cities!) we pointed out that mutual fund houses could be paying a higher upfront commission to national distributors for sales in B15 cities. This could be a reason why equity mutual fund sales in B15 cities have shown a growth while all investor categories in both T15 and B15 cities have reported a decline in sales. The Association of Mutual Funds in India (AMFI), has been known to support big fund houses and large distributors. Last year, AMFI scrapped the plan to ban upfront commission. Trail commissions, though lower than the one-time upfront commission, support the business model of small distributors and IFAs as they establish long-term relationships with their clients.
Under the whistleblower programme, in case a tip-off results in monetary sanctions of over $1 million, individuals concerned can get 10-30% of the sanctions collected
US Securities and Exchange Commission (SEC) has received as many as 18 whistleblower tip-offs from India during the 12-months to end-September. These tips were provided to the SEC for probing into various market related irregularities. UK topped the charts with 66 such tip-offs to SEC.
Overall, the SEC received more than 400 whistleblower tip-offs from various countries during the financial year 2013 (October 12-September 13).
The UK is followed by Canada at the second place with 62 tip-offs on instances of possible wrongdoings, China at 52, Russia at 20, India and Ireland 18 each and Australia at 15.
The annual report is prepared by the SEC staff as part of the US government whistleblower programme. The programme allows individuals to provide information on possible violations of securities regulation, without revealing their identity.
The regulator received 557 tip-offs related to corporate disclosures and financial reports, 553 on fraud, 525 information on manipulation and 196 concerning to insider trading, it said.
“Since the beginning of the whistleblower programme, the Commission has received whistleblower tip-offs from individuals in 68 countries outside the US. In fiscal year 2013 alone, the Commission received submissions from individuals in 55 foreign countries,” the report said.
Among other countries, SEC got 8 tip-offs each from Switzerland and Italy, seven from France, four from Singapore and one from Malaysia.
Besides, the number of tip-offs and complaints received by the US regulator increased to 3,238 in the fiscal year 2013 from the preceding fiscal.
Under the programme, in case a tip-off results in monetary sanctions of over $1 million, individuals concerned can get 10-30% of the sanctions collected.
The regulator paid over $14 million in awards during the year, the report added.
In an essay, Anand Mahindra says the world has a stake in India’s success not just because of the need for someone to pick up the slack from a slowing China
Anand Mahindra, chairman and managing director of Mahindra and Mahindra (M&M), India’s largest utility vehicle maker, feels that India cannot afford to emulate China. "The world has a stake in India’s success—and not just because of the need for someone to pick up the slack from a slowing China. Much of the developing world faces the same challenges India does. The solutions developed here—the answers to almost metaphysical questions about how societies should work and grow—will have worldwide relevance," he said in an essay complied by McKinsey & Co under its ‘Reimagining India’ series.
Sharing his views on India and China, Mahindra said, “If we continue to judge India’s progress by China’s, using metrics like foreign direct investment (FDI) and gross domestic product (GDP) growth, or statistics like the kilometres of highway and millions of apartments built, we will continue to be branded a laggard. India’s messy coalition governments are not suddenly about to become as efficient and decisive as China’s technocrat-led Politburo. Nor should that be the goal.”
“Moreover,” the M&M CMD said, “India simply cannot afford to grow like China has over the last two decades. In authoritarian, tightly controlled China, the costs of that headlong economic expansion are obvious. Unbreathable air and undrinkable milk, slick-palmed officials and oppressive factory bosses provoke tens of thousands of protests each year. In a society as diverse as India’s—driven by religious, community, and caste divides—those kinds of tensions can easily erupt in violence and disorder. Already the battle between haves and have-nots is driving a powerful rural insurgency across nearly a third of the country. Labour riots can turn into religious pogroms. Farmer protests can turn into class wars.”
Mahindra feels for India’s economy to expand as rapidly and yet more sustainably than China’s, we need to make our differences into virtues rather than vulnerabilities. He said, “For too long we have clung to a mind-set shaped by the early independence years, when the areas in the northwest and northeast had become Pakistan, and India’s first government was struggling to weave a patchwork of provinces and maharaja-run kingdoms into a nation. In those days, the risk that India might break apart was very real. One of India’s great accomplishments is that no one worries about that anymore. Indeed, the idea of a united India runs so broad and deep that it allows us to consider a counter-intuitive way of thinking about growth—that the best way to propel the economy may be to encourage different parts of the country to go their own way.”
Courtesy: McKinsey & Co