Mutual Funds
Public sector banks eat into share of equity mutual fund sales

There is a subtle change in the way mutual funds are being sold

Public sector banks are attracting more investor money into equity funds through their large network of branches, post the ban on entry load. Though private banks still lead in total market share, they are falling behind their public sector counterparts.

According to a Boston Consulting Group (BCG) & Computer Age Management Services (CAMS) study, public sector banks contributed 2% of the total equity fund inflows between January-July 2009. This jumped to 5% in the first quarter of 2010.

On the other hand, gross equity inflows from private banks have remained stagnant at 29% in August-December 2009 and January-March 2010 after having declined from 31% in the January-July 2009 period. The largest share of inflows in the first quarter of this fiscal was still from private banks (29%), followed by large Independent Financial Analysts (IFAs) at 19%, national distributors (11%), distributors with online presence (11%), direct channels (10%), regional distributors (10%) and public sector banks (5%). Medium-sized IFAs and small IFAs contributed 5% and 1% of the equity inflows, respectively.

Public sector banks started selling mutual funds only recently. Many private and foreign banks were already selling mutual funds through their branch networks and relationship managers.

"Distributors are not aggressively promoting mutual fund products. Agents of national distributors have not been incentivised properly. There has been some awareness among investors investing online. State Bank of India (SBI) is aggressively selling mutual funds," said RL Narayanan, vice president - equity & institutional sales, Bonanza Portfolio Ltd.

SBI, India's largest public sector bank, has trained 18,000 employees to pass a mandatory Association of Mutual Funds in India (AMFI) exam, making it one of the largest distributors of mutual funds.

Asset management companies (AMC) which sold funds directly through their offices or from their online channels have seen a marginal increase from 9% in August-December 2009 to 10% in January-March 2010.

Large IFAs - who have AUM (assets under management) exceeding Rs1 crore - pulled in 16% of equity fund investments between January-July 2009 which rose to 19% in August-December 2009. Their pie has remained intact in the first quarter of 2010 at 19%. There are around 1,00,000 IFAs registered with AMFI.
Equity inflows from national distributors have shrunk to 11% in January-March 2010 from 12% between August-December 2009 after market regulator Securities and Exchange Board of India (SEBI) abolished entry loads in August 2009. National and regional distributors have their own sales force, offices and online channels; independent IFAs lack these resources.

The first quarter of 2010 saw the launch of equity funds like Axis Equity Fund, Bharti AXA Focussed Infrastructure Fund, Fidelity India Value Fund and Sundaram BNP Paribas Select Thematic Funds - PSU Opportunities. There were 307 equity schemes in the first quarter of 2010 with AUM of Rs19,063 crore. Equity funds witnessed an inflow of Rs478 crore in the first quarter of this fiscal.

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COMMENTS

sanjeev kumar

6 years ago

Dear Mr. Krish as you have raised the question about the trail brokerage for IFAs for Mutual funds .Trail helps them to sustain in the business for long term as they also have operating expenses including the cost in servicing the clients.If any IFA earns good amount of trail then it means that he or she has stayed in the business for a long period --he is serious of his work and had worked very hard As you know that trail brokerage comes in a is very small percentage .Moreover as an investor one should not raise his / her eyebrow on the earnings of an IFA where investors are getting returns above 20 % on their investments. Its the IFA who has encouraged them to stay invested for long and reap the benefits of equity market.In fact the investors should support the IFAs in the current situation after the abolish of upfront brokerage. Ultimately its the mutual benefit which is the basis of long term relationship

james pereira

6 years ago

very good

asim kumar das

6 years ago

without the considerable commission (upfront) to the individual IFA's, mutual investment confined within the teritory of metropolis cities only. It will take long time to reach to the rural or non-metro areas. The govt employees' salary is increasing by leaps and bounds whereas the individual financial advisors are facing 'no bread & butter' days ....the difference is being like Have & Haven't'. What's to say more?
asim kr das.. IFA (indi. mutual fund advisor.)

krish

6 years ago

CAN U TELL US WHERE / WHO THE TRAIL MONEY IS GOING?

SEBI SHOULD BRING ANOTHER REFORM TO GIVE THIS BACK TO THE INVESTORS.

AND SAME SHOULD BE DONE WITH INSURANCE BUSINESS WHERE, DUE TO AGENTS POCKETING LARGE PERCENTAGE, INSURED HAVE TO PAY THROUGH THEIR NOSE!



krish

6 years ago

CAN U TELL US WHERE / WHO THE TRAIL MONEY IS GOING?

SEBI SHOULD BRING ANOTHER REFORM TO GIVE THIS BACK TO THE INVESTORS.

AND SAME SHOULD BE DONE WITH INSURANCE BUSINESS WHERE, DUE TO AGENTS POCKETING LARGE PERCENTAGE, INSURERS HAVE TO PAY THROUGH THEIR NOSE!



Weekly Review: The rally continues but watch out for a sharp break

Our long standing target of 18,300 on the Sensex is close but don't bet on the rally to continue much further

The market was up 1% on a weekly basis on the positive global cues. Sentiments also got a boost from 'in-line' corporate earnings reports and positive economic indicators. The market started the week in a subdued manner; however, it gained smartly over the passage of the week. On Friday (23rd July) the Sensex stood at 18,131 and the broader Nifty was at 5,449.

Tata Steel, Hindalco Industries, Bharti Airtel, Sterlite Industries (up 5% each) and Mahindra & Mahindra (M&M) (up 4%) were the top Sensex gainers during the week. Hindustan Unilever, Maruti Suzuki (down 2% each), Cipla, Jaiprakash Associates, and Reliance Infrastructure (R-Infra) (down 1%) were the top losers. In the sectoral space on the BSE, metal jumped 4% and capital goods added 2% while the healthcare index shed 2%.

The Asian Development Bank (ADB) expressed its confidence on the East Asian economy and said that monetary and fiscal stimulus should be gradually withdrawn. The multilateral lending agency noted that a strong first quarter had lifted the region's economies above peak pre-crisis gross domestic product (GDP) levels.

In the US, the National Association of Home Builders/Wells Fargo Housing Market index fell more than expected in July to its lowest level since April 2009 after a popular tax credit for homebuyers expired in April.

The government plans to present in Parliament a bill to implement the goods and services tax (GST). Finance minister Pranab Mukherjee on Wednesday (21st July) proposed a three-rate structure for GST - which will simplify the indirect tax regime - under which goods will attract 20% levy, services 16% and essential items a concessional 12%.

Mr Mukherjee proposed these rates to the state finance ministers at a meeting in New Delhi to evolve consensus over GST that is planned to be implemented from 1st April, next year.

Annual food inflation fell to 12.47% for the week ended 10th July from 12.81% in the previous week on the back of a decline in prices of vegetables, especially potatoes and onions. On a yearly basis, potatoes became cheaper by over 45% and onions by nearly 8%. Overall vegetable prices fell by 9.92%. Prices of pulses, however, were higher by 23.79% during the week under review over the same period last year.

India's annual monsoon rainfall was 17% below normal in the week to 21st July, improving after a 24% deficit in the previous week, the India Meteorological Department (IMD) said. Weekly rainfall in the key crop-planting period was above normal in north India's cane and rice-growing regions, but deficient in soybean-growing areas of central India.

US mortgage applications jumped last week and demand for home refinancing loans hit the highest level in 14 months, according to the Mortgage Bankers Association. The Labor Department reported that new claims for US unemployment benefits rose more than expected last week, after two weeks of sharp declines. Initial jobless claims surged more than 8% to a seasonally adjusted 4,64,000 in the week ending 17th July.

C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council (PMEAC) said that India's economy can expand at 8.5% in the current financial year despite monetary policy tightening. The prime minister's economic advisory panel said that inflation will be at 6.5% by March 2011. As such, the PMEAC's projection of inflation in its Economic Outlook for 2010-11 was a percentage point higher than 5.5% projected by the RBI. Mr Rangarajan attributed this to the impact of fuel price hike on inflation.  It is widely expected that the Reserve Bank of India (RBI) in its 27th July monetary policy review will raise short-term key rates - repo and reverse repo - to tame inflation that has been in double digits for a fifth month in a row at 10.55% in June.

India's foreign exchange reserves rose to $281.901 billion as on 16th July, from $279.422 billion a week earlier, the central bank said in its weekly statistical supplement.

As per a UN report released on 22nd July, India was ranked the ninth most attractive investment destination in 2009 with a total foreign direct investment (FDI) inflow of $34.61 billion. The World Investment Report-2010, prepared by the United Nations Conference on Trade and Development (UNCTAD) said that India attracted sizeable overseas investment despite the overall drop in such inflows due to the global financial crisis.

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Online channels already 20% of the remittance market and growing

After hawala and bank channels, remittances through online channels are expanding rapidly

The migrant population from India is pouring money into the country and while they do so, they are increasingly using online payment channels. Globally, the remittance or money transfer market clocks around $240 billion-$250 billion in revenues. India accounts for a major chunk of this portion and is the largest recipient of remittances globally, witnessing inflows to the tune of nearly $58 billion annually. Increasingly, more and more people are adopting the more advanced and efficient official money transfer channels, which has resulted in the industry growing at a compounded rate of 20% annually for the past few years.

While the overall remittance market is growing fast, the online remittance space can grow only when people who are habituated to do wire transfers through banks, start to adopt the new channel. Avijit Nanda, president, TimesofMoney, told Moneylife, "The challenge is to break the mindset and get the customers to adopt such superior services. If you are able to establish a proof of concept with these users and get them on board, they will never go back once they use the system."

Mr Nanda added, "Traditionally, customers were using bank cheques and bank wires, but with the emergence of online channels like ours, they chose to leverage on the technology benefits available in terms of transparency, efficiency of costs, pricing, convenience etc. Since there are no intermediaries or channels either on the sell side or receipt side, the cost of providing such services is significantly lesser than what a traditional money transfer operator works on. Hence, we have the ability to provide better pricing."

TimesofMoney is a digital payment services company and serves varied clients both in India and around the world. It offers services such as India Money Transfers, Global Money Transfers, E-Payments and Co-branded Cards. Globally, companies such as Western Union and Moneygram have a sizeable presence in this space.

Hawala networks as a channel for money transfer have been thriving for decades. The existence of such informal transfer systems are still a challenge for the official channels. Mr Nanda pointed out that hawala channels are the only alternative for the scores of illegal immigrants, who cannot approach banks since they would be immediately asked for their immigration status. Although hawala networks will never go away completely, he feels that the dependence on such channels is gradually coming down in favour of the more accessible official channels. "Banks and money transfer companies like ours have realised that there is a huge potential for making services available to more and more people by improving distribution reach, network and accessibility. Usage will come from these efforts. Gradually, people are adopting official channels which are more accessible. Hawala also comes at a significant cost. We have seen the dependence on hawala channels diminishing as we move ahead."

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COMMENTS

Barry

6 years ago

The main problem with many online payment services to India is the the exchange rate and charges quoted when you use them to send money is not the same as what you get, you can often receive less rupee than you planned.

Transfermate.com offer the most competitive exchange rate to india. Their online system shows you the rate agreed, what stage your transfer is at and provides excellent tracking.

V Malik

6 years ago

Global banking for the unbanked, very wide base, and that's where the numbers are. Pitfalls, however, are:-

a) Control is at point of collection or disbursement?

b) Transaction cost analysis, exchange rate arbitrage and repeat transfers.

The amounts are multiple and small and often there is no simple recourse for either side in case of any issues.

There has to be a simpler and better way. And it has to be controlled in India, the point of disbursement.

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