Equity Mutual Funds witnessed a heavy outflow of Rs1,665 crore along with a decline of 6 lakh folios in December 2012. All this in the last month of the year when the Sensex closed at 19427, up 25% for CY2012
The year 2012 had been a good year for the markets where the Sensex rose by more than 25%. However, equity mutual funds suffered heavy redemptions over the year. December has been the seventh month in a row where there has been a net outflow from mutual funds. In the last month of 2012, equity mutual funds witnessed an outflow of as much as Rs1,665 crore, as per data from Association of Mutual Funds in India (AMFI). Sales touched their maximum in the last nine months at Rs4,125 crore, however, a massive redemption of Rs6,008 crore led to a net outflow. Despite good sales, there was a massive reduction in folios of equity schemes and equity linked savings schemes (ELSS). The number of folios declined by a huge 6 lakh from 3.46 crore in November 2012 to 3.40 crore in December 2012 according to data from the Securities and Exchange Board of India (SEBI).
March 2012 and May 2012 were the only two months of CY2012 which witnessed a net inflow of funds. The remaining 10 months witnessed a net outflow as much as Rs15,678 crore, taking the net outflow for CY2012 to Rs15,567 crore. But not only are fund houses faced with heavy redemptions, there has been a massive decline in folios as well. In the nine month period from April 2012 to December 2012, the number of folios has declined by over 36 lakh. Data from Computer Age Management Services (CAMS) also shows that a large portion of Systematic Investment Plans (SIPs) were withdrawn before the completion of their tenure. From April 2012 to September 2012 as many as 9.78 lakh SIPs were withdrawn before their tenure. (Read: Mutual fund SIPs decline further. Who is to blame?)
In fact this has not been a recent phenomenon. Moneylife has constantly been writing about the declining investor population. Over the past three years from March 2009 to December 2012 there has been a massive decline of 77 lakh folios. As on 31 March 2009 the number of folios stood at 4.17 crore, but since then there has been a constant reduction in folios and as on 31 December 2012 the number stands at 3.40 crore folios. It would be very unlikely that existing investors would keep investing more and more. The net outflow from 1 April 2009 to 31 December 2012 totalled a massive Rs23,317 crore. In this 45 month period, there were as many as 28 months that witnessed a net outflow.
(Read our earlier articles on the issues faced by the fund industry:
It is not that the regulator is not aware of these facts. Just recently it woke up to the declining investor population. However, instead of coming up with policies that are pro-investor, it came up with policies that benefit the asset management companies and punish existing investors. Last year, SEBI came up with the idea of a transaction charge for new and existing investors. However, a majority of the distributors opted out from charging their clients a transaction charge.
Now, after the latest slew of reforms, existing investors would have to bear an increase in costs as mutual fund schemes are allowed to charge an additional expense ratio of upto 30 basis points depending on inflows from the beyond 15 cities. Fund houses are to use this additional revenue to increase their penetration beyond the top 15 cities. However, as the data shows, since the inception of this regulation from 1st October 2012 and up to 31 December 2012, as many as 14 lakh folios have moved out of the industry. In a recent article (Read: Mutual fund regulations: Who contributes the most to equity inflows is overlooked) we showed that independent financial advisors (IFAs) contribute the most to new equity fund inflows especially from beyond 15 cities. Yet the regulator chooses to ignore this ‘small’ distributor community. In fact the new direct route could do more harm to their business as they would lose existing clients who may opt for the plan with lower expenses.
As per the new reforms, direct plans have been launched to benefit direct investors as it would have a lower expense ratio. However, with no proper advice and handholding it is doubtful whether the new route would be able to attract nascent investors.
It took SEBI three years to realise the ill-effect of banning entry load in August 2009. After which it has come out with a new set of reforms which has yet to have a positive effect on the industry. How much longer would SEBI wait to come out with tougher reforms, we would have to wait and see.
Information commissions are increasingly being lenient in penalising Public Information Officers (PIOs) for not providing information that they should, or being absent at hearings at the information commission. If so, are the information commissioners making PIOs and Appellate Authorities unaccountable?
Pune-based RTI (Right to Information) activist Vijay Kumbhar has triggered off a controversy through his column in the Marathi daily Pudhari that despite information commissioners being empowered to penalise Public Information Officers (PIOs), they do not do so even if they do not provide information to the applicant or remain absent for hearing at the information commission. Kumbhar states, “information commissioners are responsible for the worrying trend of government employees not being serious about the RTI anymore as they are often not held accountable.”
He cites two recent decisions of State Information Commissioners in Maharashtra on New Year’s Day, as examples. In the first decision, the applicant who had filed a RTI in July 2011 did not get the required reply and the First Appellate Authority (FAA) did not bother to conduct any hearing. This compelled the applicant to file second appeal with the information commission.
However, when the matter was heard at the state information commission, the commissioner merely ordered that information be given within a specific period by the PIO but he did not levy any penalty on the PIO or question the absence of both the PIO and FAA. Says Kumbhar, “in this case, the PIO or FAA did not bother about the RTI application or appeal filed before them. They even did not have the courtesy to attend the hearing of an appeal before the information commission. But the Commission in its order has not dealt with some basic questions like, what was the information the applicant had sought for? What were the reasons behind not furnishing the information by the PIO? Why didn’t the appellate authority conduct hearing on the first appeal? Why was the PIO and the appellate authority not present for the hearing before the information commission?” The least the information commissioner could have done, says Kumbhar is to issue a show-cause notice as to why they remained absent.
In the second case, says Kumbhar, the applicant did not receive the information that he had asked for from the PIO but the FAA dismissed his appeal by stating that the required information was provided to him by the PIO and that too,10 months after the applicant had filed his first appeal. During the second appeal hearing, the information commissioner did not go into details as to what information was asked for by the applicant? In such a case, the information commissioner has the power to impose fine on the PIO and reprimand the FAA for conducting the hearing after 10 long months but they were not pulled up. If the information commissioners are so lenient, then why should PIOs bother about applications they receive under RTI?
So, are information commissioners advertently or inadvertently killing the power of the RTI Act? Moneylife asked a cross-section of RTI activists:
RTI activist Maj Gen SCN Jatar (retd)
Information Commissioners cannot afford to be lax: Kumbhar’s observations set out in reality how RTI commissioners are set to kill RTI. They do not realise that such decisions are taken as examples of superficiality and laxity in penalising errant PIOs. PIOs are apt to then follow the same methods again and again. The basic criteria that should govern good judgments are a) They should be well-reasoned so that these can be cited in future judgments and ii) they should give a clear message to the errant PIOs that avoiding or evading giving information, which should be in public domain, will not be tolerated. The two cases quoted by Kumbhar do not meet both the above criteria.
Former Central Information Commissioner and RTI activist Shailesh Gandhi
Faster disposal of cases and reasonable threat of penalty required: Most Information Commissioners use the penalty provision as if it was a death penalty to be imposed in the rarest of cases. I do not see any problem with who attends the hearing. The Commissioners should give orders for information irrespective of whether the PIO attends or not. The hearing is an opportunity to present one’s views or argue on required matters. If the appellant or PIO does not attend, they may not want the opportunity of hearing. To believe that when either side is not present, a Commissioner must rule in favour of one who is present does not appear correct or desirable.
I had levied 521 penalties totalling Rs.92 lakh in the 20,400 cases which I decided in three years and nine months. The rest of the Central Information Commissioners collectively imposed penalties in about 330 cases in the Commission and had decided about 80,000 cases. There is no doubt that there is a link of penalty imposition with compliance of the law. If cases are decided fast, and there is a fear of penalties, the PIOs and First appellate authorities become more alert and try to meet the requirements of the law. The total cases received by the Central Commission rose by about 50% in a two year period from 2009 to 2011. The cases for Municipal Corporation of Delhi—which I handled throughout my tenure rose by only 15%. This indicates that faster disposal and a reasonable threat of penalties would get better compliance of the law.
RTI activist Subhash Chandra Agrawal
Each order of Information commission should be comprehensive: It is usually observed that generally penalties are not imposed by Information Commissioners thereby making Public Information Officers (PIOs) lethargic towards complying with provisions of the RTI Act. There should be a practice whereby each order of Information Commissions may carry all the relevant dates like filing a RTI petition, reply of PIO, filing first appeal and of appeal-order. There should be auto-calculation of penalty in each verdict of Information Commissions making penal-provisions under Section 20 of the RTI Act mandatory rather than discretionary as at present. Reasons for waiving or reducing applicable penalty should be specifically mentioned in verdicts of Information Commissions. Information Commissions should maintain record of penalties imposed. Non-payment of penalties in specified time should be reported once in a month to Cabinet Secretary/Chief Secretary who should be duty-bound to initiate disciplinary action against defaulting officers apart from taking steps to recover penalty-amounts from salary/pension payable.
RTI activist Commodore Lokesh Batra (retd)
Applicants should be innovative, interactive with PIOs: Every applicant must realise that it is only after the RTI Act that citizens have become participative in governance. RTI has given us a chance to be an integral part of public accountability so we should not take an adverse stance against PIOs as far as possible. Every RTI applicant should make untiring efforts not to take the case up to the Information commission level as he or she would face inordinate delays, even up to two years. I use innovative methods to interact with the PIOs to extract information in case they hesitate to provide it. Today, I have developed good relations with many public authorities and they sometimes call me for suggestions or advice. Also, after the 2G scam it has been observed that every single reply under RTI at least in the Prime Minister’s Office (PMO) goes to the top bureaucrat so what is the use of blaming or penalising PIOs who are at the mercy of their bosses? Also, in the information commissions, it is the bureaucrats who create more hurdles than the information commissioners themselves.
Researcher and RTI activist Venkatesh Nayak
Public Authorities should take implementation of RTI Act seriously: I agree that to make government employees take RTI seriously PIOs should be penalised but that is just one of the solutions. Penalty cannot be the only deterrent as much as vigilance by higher authorities can be. It is the responsibility of public authorities to clearly push for policy of transparency and that should be visible in action and not by merely issuing paper orders. Serious implementation of RTI cannot be only a PIO’s headache. The top brass of every public authority should regularly monitor and be vigilant about transparency. Mechanisms to check it should work efficiently and should be given top priority. Targets should be set for accountability. Every office has a Monthly Monitoring Report (MMR). It is also called the Monthly Progressive Implementation Calendar in Karnataka. It requires reporting physical and financial progress to superiors who in turn give guidance on the basis of the report. There should also be scrutiny at the highest level, which is legislature. Such professional monitoring has not been seen for RTI. It is only when the government employees know that someone is seriously watching over them, that everyone down the line will take RTI seriously. Perhaps some incentives like increased funding or an award to the Public Authority which implements RTI diligently could help.
To read more from Vinita Deshmukh, please click here.
(Vinita Deshmukh is the consulting editor of Moneylife, an RTI activist and convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting which she won twice in 1998 and 2005 and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals. She co-authored the book “To The Last Bullet - The Inspiring Story of A Braveheart - Ashok Kamte” with Vinita Kamte and is the author of “The Mighty Fall”.)
The railway minister has announced a hike in fares even before the budget session. The government is unlikely to give more funds to the Railways and several modernisation projects can be undertaken only if the Railways can generate enough revenues
Railway minister Pawan Kumar Bansal has announced a fare hike with effect from 21st January midnight. There will be no increase during the budget, he added. This is the first railway fare hike in ten years. The new fares imply a 2 paise per kilometre increase in second class ordinary suburban tariffs. The fare for second class non suburban travel has gone up by 3 paise per kilometre and that of sleeper class has been hiked by 6 paise per kilometre. Travelling in air conditioned (AC) chair car and AC sleeper class will now be costlier by 10 paise per kilometre. In effect, the same railway fare hike that lost Dinesh Trivedi, the job of the railway minister has now been implemented after the Trinamool Congress, to which he belonged, is no longer a part of the government.
However, the big flash about the railway fare hike is misleading. Prices for local commuter fares have already been hiked in Mumbai from 1st January. The irony is that Mumbai faced the worst hardship and lost at least four lives due to a badly planned and managed mega block (closure for repairs) over the year end which extended into the New Year. Both railway associations and commuters are extremely agitated at poor safety standards and the inhuman overloading of passengers in Mumbai, although the city is a big revenue earner.
According to Madhu Kotian, president, Mumbai Rail Pravasi Sangh, “We will neither welcome, nor protest the hike. If the additional revenue from the hike is given for improving infrastructure of Mumbai local railways, then we will welcome it. The hike could have been done 10 years ago as the situation in local trains has gone from bad to worse. Even non-peak hours have seen peak hour rush. Some people have simply stopped working as they cannot enter trains.”
Expressing concerns about the local railway infrastructure he added, “People from all over India come to Mumbai for jobs. But, infrastructure projects for local railways have not been implemented due to lack of funds. Due to regional parties holding the ministry there has been a neglect of Mumbai’s local issues as they want to pander to their own local vote banks. They have to realise that their own people come to Mumbai for jobs and there is need for funds to improve conditions for 70 lakh commuters of Mumbai local railways.”
The Railways estimates suggest that it looses Rs21,000 crore annually in the passenger fare segment. It is reported that Planning Commission deputy chairman Montek Singh Ahluwalia met Mr Bansal and told him that the government may not give more funds to the Railways. Mr Ahluwalia said that it has to generate revenue to fund its dream projects including modernisation and expansion—particularly the dedicated freight corridor and high speed bullet trains.
Deepak Gandhi is the president of Mumbai Suburban Passengers Association who has been fighting the cause of railway passengers for 50 years. According to him, “The hike is a premium on inefficiency. Today, trains are running slower than in 1947. New technology is not implemented and there is huge wastage of resources. We should be having double the number of services on the same tracks. Corridors can be reached in half the time if efficiency is improved. Politicians do not apply their mind. Whatever the bureaucrats say, it is blindly implemented. The benefit is not coming to the public. There is total abuse due to Railways monopoly.”
Dinesh Trivedi, former railway minister, while speaking at an event organised by Moneylife Foundation, had said that the entire railway system is in a mess and there is a urgent need to modernize it so that people can travel safely with some dignity, unlike what every commuter, especially on Mumbai local trains experience every day. “There are no maintenance contracts given by the Railways and they are carrying out even the basic repairs on ad-hoc basis,” he had said.
Mr Bansal is reported to have said that the cross-subsidization—a scheme where railways charge higher freight rates in order to keep the passenger fares low—has become unviable and railways can persist with it only at the cost of pricing them out of the goods transportation business. Road transporters will result in clogged roads, higher transport cost for goods and higher pollution.
He also said that railways needed funds to do even the elementary things—from upgrading signalling system to facilitate running of trains through fog, installation of anti-collision devices to bio toilets in coaches and at stations as part of ensuring better hygiene.