Mutual Funds
Mutual fund entry load ban cripples equity schemes

After the ban on entry load from 1 August 2009, the mutual fund industry has seen a massive outflow of investments even as the bull market continued

Ever since the Securities and Exchange Board of India (SEBI) has banned the entry load for mutual fund schemes, fund companies have been suffering from a steady haemorrhage of cash in their equity schemes.

Here are some facts that will show you how badly this ban has affected the mutual fund industry. The ban on entry load took effect from 1st August last year. Between August 2009 and December 2009, when the Sensex was up 15%, the mutual fund industry saw a massive outflow of Rs7,315 crore. This is all the more galling for the fund industry, because mutual funds normally benefit from inflow of funds when the market is rising. Between March 2009 and July 2009 when the Sensex was up 88%, the fund industry saw an inflow of Rs7,429 crore.

Therefore, the continuous outflow of cash can only be attributed to SEBI’s order of banning entry loads and forcing fund distributors to make money by ‘advising’. Distributors have simply stopped selling funds. Indeed, when the Sensex came down crashing by 39% between April 2008-December 2008, the mutual fund industry still saw an inflow of Rs1,254 crore.

The truth is that, the ban on entry loads has dried up the distributors’ revenues and they are now asking investors to consider Unit-linked Insurance Plans (ULIPs) and company fixed deposits as the next best investment opportunity.

This is unfortunate because ULIPs are no better than funds unless they are held for a longer period and fixed deposits are unsecured. But the commissions on ULIPs and FDs are extremely attractive which is why distributors are pushing them.

Till July last year, the entry load used to come from the corpus of the fund which the distributors used to receive for pushing funds. However, SEBI mandated that investors have to pay the distributors directly for the services they get and it is up to them to negotiate what those services are and how much they should pay. This ban has severely affected the distributors—especially independent financial advisors—as they earned attractive fees. It has also brought down the number of new fund offers (NFOs). There have been just 22 NFOs since March last year when the long rally started taking the Sensex up by over 100%.
 

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COMMENTS

Srini

7 years ago

u hv mentioned IFA's earned attractive commission, was 2% earning on equity MF's very attractve. The margin on any other product is 5-10%? Hope u understand that this 2% is liable for Income Tax and also takes care of the overheads and other expenses met by the IFA.

Govt to look into non-delivery of flats by Maytas Properties

The government has assured NRIs that it would work out a solution to the non-delivery of flats sold by Maytas Properties, promoted by relatives of disgraced Satyam founder B Ramalinga Raju

Ruling out any bailout package for Maytas Properties, the government on Thursday assured non-resident Indians (NRIs) that it would work out a solution to the non-delivery of flats sold by the company promoted by relatives of disgraced Satyam founder B Ramalinga Raju.

"I am confident of finding a solution to the problems. We are looking at it seriously. I am hopeful of resolving the issue as soon as possible," corporate affairs minister Salman Khurshid told reporters on the sidelines of the Pravasi Bharatiya Divas.

"We will not offer any bailout for the company. They don't need a bailout. They need just cash flow," Mr Khurshid said at the conference where many NRIs and persons of Indian origin (PIOs) raised the issue of non-delivery of flats sold to them by the company.

According to a delegate, around 400 NRIs from Australia, the US and the UK have purchased flats being developed by Maytas Properties.

Maytas Properties, which ran into trouble after Mr Raju admitted to a multi-crore rupee accounting fraud, was developing a Rs1,100-crore residential ‘hill county’ project near Hyderabad. The project, however, could not be completed as the company faced financial problems.

Before the disclosure of fraud by Mr Raju in January 2009, the shareholders of Satyam had rejected the efforts of the then promoters to acquire Maytas Properties along with another sister company Maytas Infra.

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Progress in Jharkhand, Orissa projects ‘slow’, says LN Mittal

LN Mittal has expressed concern over the slow progress in the proposed Rs1 lakh crore steel projects in Jharkhand and Orissa, but has ruled out exiting at this stage from these states

Steel king LN Mittal on Thursday expressed concern over the slow progress in the proposed Rs1 lakh crore steel projects in Jharkhand and Orissa, but ruled out exiting at this stage from the states, reports PTI.

Meanwhile, the Karnataka government has approved Mr Mittal's proposed Rs30,000-crore, six million tonnes steel project in the state and the pact will be signed in June this year.

"We are not satisfied with the progress made in Jharkhand and Orissa. We hope that we can make more progress than what we have achieved so far. But our endeavour will continue. We don't plan to exit from any of our projects," he told reporters in New Delhi.

"The plan remains the same but the project can come in phases," he said in reply to a query whether the global steel maker may scale down capacity of its 12 million tonne per annum (MTPA) plants, one each in Jharkhand and Orissa.

ArcelorMittal has been facing problems in acquiring land and delays in securing regulatory approvals for its proposed Rs1 lakh crore steel projects in Jharkhand and Orissa.

The non-resident Indian (NRI) billionaire is likely to raise these issues in a meeting with steel minister Virbhadra Singh today.

About the Karnataka project, Mr Mittal said, "The Karnataka government has given preliminary approval for the proposed plant. The Karnataka plant will be the company's third plant."

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COMMENTS

PARTHA

6 years ago

kind Attn,Mr.Mittal, I can provide approx.4000 acr land in jharkhand, kharswama. It.is my idea if you cant find land together in same place ,you can go for shatelite projects, you can splite the factory ,product wise in different plases. thanks .Partha.

Deepak garg

6 years ago

Dear LN Mittal Sir
we have 7400 Acres land with all villagers NOC sign in Jharkhand (where u start ur new plant) we read ur this plant news in newspaper & start for searching land in same area; from some time i search ur contact information; so pls tell me where we show land document.. urently

Shadi Katyal

6 years ago

It is indeed very thoughtful of Mr. Mittal to bring such project but how long will he have to wait.Evidently Mr. Dubey you are not a businessman. You think his personal meeting will solve the problem,
People have to understand that if they wish to live better life, they might have to sacrifice their land which not only keeps them in poverty but have no future to move ahead. Other wise these people would not be so poor. We have seen similar situation in Bengals with TATA NANO.
What Govt needs is to negotiate if the state wants any plkant with people and show some respect for the farmers and not Sarkari toughness.
India can only progress if people are shown the true picture and not exploited by.NGO and other groups.

vivekanand dubey

6 years ago

First off i am very happy for Mr.Mittal statement he not quit this state. I would like to draw his concentation diectly meet the person and slove thier problem regarding land,because every need thier bread and grant their future bread through this coming steel plant. By the bless of the god you will make the plant in jharkhand and orrisa. By it you will give the power of india through this mega project. Belive in god you will do it shortly.

Shadi Katyal

7 years ago

Maybe the contributions to bureaucracy is not enough. Who cares for the poor people after all our Ministers the poorest

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