Mutual fund redemptions continue unabated

Except for one month, mutual fund subscriptions since August last year have been consistently beaten by redemptions, which is indicative of the turbulence being witnessed in the industry

The series of game-changing initiatives taken up by the Securities and Exchange Board of India (SEBI) in August last year to spruce up the mutual fund industry have largely blown up in the face of the beleaguered sector. Ever since SEBI changed the face of the industry last year, outflows have far outstripped inflows into various schemes of mutual fund houses.

According to data available with Moneylife from a leading registrar and transfer agent, redemptions in non-NFO (new fund offer), non-SIP (systematic investment plan) open-ended equity funds have shown a remarkable trend of steady haemorrhage of cash. Except for the month of February 2010, every month from August 2010 has seen outflows exceeding inflows into mutual funds.

In March 2010, redemptions touched a high of Rs4,200 crore, compared to around Rs1,700 crore in the month of February. Normally, the month of March witnesses huge inflows into equity-linked savings schemes (ELSS) due to the tax benefit offered by these products. However, the current upheavals in the industry have overshadowed this phenomenon to show a deviation from the normal.
Moneylife has previously written (http://www.moneylife.in/article/81/3115.html) about how fund companies have been struggling with massive redemptions despite a surge in equity markets. As mutual funds normally benefit from a rising market, this steady drain of funds is even more galling for the industry.  

After the ban on entry loads that came into play from 1 August 2009, outflow of money from fund schemes accelerated since most financial advisors could not get incentive to sell and service funds. The ban 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.

SEBI's move may have been well intentioned, but it tripped badly in failing to assess the ground realities and the consequences of its actions. It failed to visualise that sharply higher commissions paid by the insurance industry will suck money out of MFs. It also failed to ensure the availability of inexpensive alternative distribution channels.

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COMMENTS

AMARISH SHAH

7 years ago

mf distributors are not taking the interest as the brokerage is less to them and funds are not doing well.

no fund managers salary and perks have been deducted even they have not perform well-

distributors have to answerable to their investments.
more over in sip schmes if distributors explains to any client to invest for 5 yrs or more years another distributors changes the broker then what is the benefit to the original distrinbutor.

mostly corporate brokers are approaching to the investors and explains them to change the broker.

this should be immidiately stopped.
amrish shah

Pyramid schemes run riot under insurance regulator’s nose

The insurance watchdog does not seem to have any regulation in its arsenal to crack down on multi-level marketing schemes which are being peddled by corporate agents

A life insurance policy is being openly peddled as a marketing tool under the eyes of the Insurance Regulatory and Development Authority (IRDA). Corporate agents of State-run behemoth Life Insurance Corporation of India (LIC) are running a pyramid scheme in one of its life insurance schemes.

Swarg (which is a corporate agent for LIC), is running a multi-level marketing scheme in LIC’s ‘Jeevan Saral Policy’.

Swarg states in its website that it has its headquarters at Dadar, central Mumbai. It claims that it has 45 showrooms selling jewellery and gems. According to its portal, Swarg is “planning another 1,000 showrooms as soon as possible.”
 

The company claims that it has “various concepts and insurance plans for you, which will give you tremendous attractive features like security, investments, tax benefits and above all an additional income source. With our membership, you can promote our insurance plans and earn a sizeable income which might be comparatively higher than the salary drawn by you.”

The plan works in the following way—in the company’s own words—“We have launched a scheme through which by taking a Jeevan Saral Policy from our company of yearly premium of Rs6,005 you can earn an extra income up to Rs4,46,976 approximately within 2 years period.” (These are the exact words of the company as they appear on the website; no grammatical changes have been done).
 

Three additional members have to be roped in at the first stage, after you cough up the initial premium of Rs6,005 for the Jeevan Saral Policy. Apparently, Swarg’s telemarketing team will then get into the act and then convince these three members to go in for the same policy. That’s when you will start to ‘benefit.’
 

As any typical pyramid scheme operates, these three new members will have to rope in three additional members each, thereby attracting a net total of nine members (we are at the second stage of the pyramid now).

And so it goes on and on, and at the eighth stage, if Lady Luck favours you and everything falls into place, you’ll have a total of 6,561 members—and your promised ‘net rewards’ work out to Rs4,00,937. There is a caveat, though. Each member has to rope in three more members within three months for the whole multi-level marketing scheme to remain operational. 

When Moneylife contacted the company to ask whether it is mandatory to get more clients if one buys a policy, the sales executive said, “It’s not mandatory but it’s for your benefit. It’s good if you can get clients directly but if you are not able to do it then we would help you to convince your friends or relatives.”

“We don’t encourage multi-level marketing,” said a senior official from IRDA, preferring anonymity. The official also admitted that there are no rules to regulate such schemes and also said that he had no knowledge as to when such rules to curb multi-level marketing schemes will come about.

This seems odd, because a few weeks back, IRDA member S Kannan said that the insurance regulator is planning to introduce regulations to crack down on pyramid schemes.

“Multi-level marketing is not allowed for selling life insurance. If anyone is doing it, action will be initiated. It is not permissible,” said another LIC official.
Moneylife tried calling both LIC and Swarg, but no replies were forthcoming. Emails sent to both these entities remained unanswered at the time of writing this story.

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COMMENTS

M R Borkar

6 years ago

There is no dearth of "HELGIKARS". and there are ample people/goats ready for sacrifice at the altar of their
own sweet will. We can only try to educate them and try to prevent some from falling prey n of course there are regulators, law enforcement agencies
but they will come only when the perpators have vanished. Only Thing to do is to educate the people which we are doing. Borkar

Ganpat

7 years ago

I had preferred a complaint to IRDA and then followed it up with an RTI application listing 40 different sites that indulge in insurance MLM.

In their partial reply, the IRDA has said that MLM is not a permitted form of selling insurance, but remained evasive on the action taken by them to stop this practice.

According to some estimates, the money collected through this channel of MLM is to the tune of Rs 5000 crores annually.

IRDA is fully aware of what is going on. But their unwillingness to initiate any tough action suggests either they are in the payoff of these entities or the entire operation is controlled by political bigwigs, or probably both. It is nothing but swindling the public.

REPLY

sanjay bafna

In Reply to Ganpat 5 years ago

pls give list me of 40 co.

Krishna Gopal Gupta

7 years ago

Ethics are meant only for IFAs and not for the employees of the insurance who are encouraging replacements day in & day out. Their operations staff are engaged in selling ULIPs than focussing on services to be provided. Datas are being passed on to the Corporate agents who are closely related to top management. High profile customers are being encouraged to become IFAs. All this at the cost of genuine & bonafide IFAs.

Pradeep B

7 years ago

Its not only LIC thats into MLM, but a whole lot of companies like; Bajaj Allianz, Max, etc are into similar network marketing and passing out open rebates by way of incentives.. Its practically impossible that IRDA may not be aware of such open amrketing practices.

While it wants an agent to go for training and passing the exam. these marketing companies do not care for training. they show only money that can be earned by intorducing people and enlarging the chaimn even by illitereates..

ashok

7 years ago

It is done by all the insureres since long time it is open secrate they have done mlm way without any traning license all the worst. After looting every thing irda want to stop. It was in press since long time ,noticed now ,are they sleeping till day?

M.R.Borkar

7 years ago

Good. Duniay Zukati Hai,
Zukanewala Chahiye.











M.R.Borkar

7 years ago

Good. Duniay Zukati Hai,
Zukanewala Chahiye.











dillip swain

7 years ago

dear sir,
who is responsible? i hope irda chairman is not an undermatriculate.if irda chairman is a retired ias/ips,first govt. should transefer/stepped down the post.because he should learn knowledge
about what is MLM/PYRAMID/PROFESSIONAL FULL TIME INSURANCE ADVISOR.NOW INVESTORS' FEEL IRDA SHARING HIS ACTIVITIES WITH CORPORATE HOUSE FOR MILLIBHAGAT WORKS. IRDA U CAN FOOL SOME POLICY HOLDERS FOR SOME DAYS,NOT ALL POLICY HOLDERS FOR ALL DAYS.UR ACTION MAY BE RESPONSIBLE FOR UR NEXT GENERATIONS.
THANKING U, U MAY CONT, ME FOR UR SUVIVAL.

naveen

7 years ago

Whole insurance industry goes on a drive to get business at any cost. There is no reason to explain who loses at the end. These schemes are existing from ages in India. I was called for one such meeting. When I asked whether they are IRDA agents to sell the policies the truth came out. At the end after much arguments the guy told me its time to make money so use the opportunity.
The guys who sit on top posts in these insurance companies know about these. But still they dont speak as they are remunerated for their targets not for the ethics. Poor people get cheated. People need to get present to reality and should stop thinking about doubling money or unimaginable returns which is used by such companies to lure them.
However it clearly shows the state of affairs at IRDA. As an financial advisor ,its better that zero commission comes fast in to Insurance. All these cheaters will leave the business. Hope someone is awake in IRDA, SEBI and Financial ministry to take control and stop this daylight robbery.

Akshay Sanghvi

7 years ago

It is very shocking that a corporate agent is offering bogus return of Rs.4,00,000 against lic premia of Rs.6,000 in LIC jivan saral policy.
and still insurance regulatory authority and RBI not taking action against such co.
whether this is collective investment scheme which can be prosecuted by sebi.

amarish shah

7 years ago

multi level marketing is no future.
there were so many multi mkting cos came and become dead after sometimes.the channel is not working as specified by anyone

yogesh

7 years ago

@Srivathsan...Welcome to the world of realty. It seems that you have accessed Moneylife for the first time, otherwise you would have known that it is the only media that has been writing on the mis-selling of MF, insurance companies etc. First enlighten yourself and then comment.

Srivathsan

7 years ago

I find that many other private insurance companies are also conniving to their corporate agents and brokers doing it. While is moneylife silent on them? The measured silence provokes the thought if it is a paid article

R Balakrishnan

7 years ago

Pyramid schemes, whether they are run by Amway salesmen or by agents of God who run conversion rackets, will always flourish. Indian law is very easy and soft on these guys. No point moaning about it. In fact, IRDA would be happy that this is being done to promote its cause.

sunyer

7 years ago

this is a clear cut Ponzi scheme. Just hope that Swarg doesn't turn out to be NARAK for policy holders. It's high time IRDA cracks down on the concerned - it has to advertise this also in all dailies.

SEBI cuts time between issue closure and listing to 12 days

SEBI proposes to reduce the time between public issue closure and listing to 12 days from 1st May

Market regulator Securities and Exchange Board of India (SEBI) has said that it proposes to reduce the time between public issue closure and listing to 12 days from the existing (up to) 22 days. This will be applicable to public issues opening on or after 1 May 2010, SEBI said in a release.

The market regulator said that the new process would require syndicate members to capture all data relevant for the purposes of finalising the basis of allotment while uploading bid data in the electronic bidding system of the stock exchanges. To ensure that the data so captured is accurate, syndicate members would be permitted an additional day to modify some of the data fields entered by them in the electronic bidding system, it said.

The registrar to the issue is required to validate the bids and finalise the basis of allotment only on the basis of the final electronic bid file provided by the stock exchanges, SEBI said.

The market regulator said that the lead managers and their agents would be responsible for the accuracy of data entry and for resolving investor grievances. Further, the application supported by blocked amount (ASBA) process would also undergo suitable modification to make it consistent with these timelines, SEBI added.

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