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Corporates put mutual fund entry plans on back burner

Industry players blame low margins and tough rules for turning the once-lucrative mutual funds business into sour grapes, wherein existing players are contemplating selling out and applicants no more being keen on securing approvals

Nearly two dozen firms awaiting the Securities and Exchange Board of India (SEBI) nod for setting up mutual funds (MFs) now seem to have had a change of mind and they are dilly-dallying on the matter, reports PTI.

Many of these applicants had to furnish more information but they are delaying getting back.

Industry players blame low margins and tough rules for turning the once-lucrative mutual funds business into sour grapes, wherein existing players are contemplating selling out and applicants no more being keen on securing approvals.

There are about three dozen fund houses operating in the country, but business has come under pressure in recent months, with June alone seeing a 16% dip in total assets under management (AUM).

Besides, there are about a dozen more entities registered with SEBI.

On the top of it, as many as 24 applications are pending with SEBI for entering this business, but the processing status data available with the market watchdog indicates a lack of interest from most of those who had earlier announced mega plans to enter the business.

Out of these applications, 18 have been asked to furnish further information and such pending applications date way back to 2006.

"The corporate houses are shying away from entering the asset management business as they are finding them less attractive with the SEBI now turning its focus to making it investor friendly," a senior industry official said.

Those awaiting SEBI nod include Matrix Financial Services (since March 2006), Indiabulls (June 2007), Nikko AM (July 2007), India Infoline (January 2008), SREI Infra Finance (July 2006), Union Bank of India-KBC Asset Management (February 2009).

Entities seeking approval from SEBI also include Jaypee Capital Services, ASK Investment Holdings, Prime Securities, Karvy Stock Broking, Unicon Securities, Mahindra & Mahindra Financial Services, First Global Stockbroking, Bajaj FinServ-Allianz Global Investors, Enam Asset Management and Parag Parikh Financial Services.

Besides, HDIL Constructions and Kumar Housing are seeking nod to set up real estate MFs for about a year now.

Out of these applications, only one (Parag Parikh Financial Services) was filed this year and the remaining were submitted with SEBI between 2006 and 2009.

Sources in the industry said that many potential entrants are putting their entry plans on the back burner and even some existing players are developing cold feet, presumably because of falling margins and tough regulations.

Compounding their woes is the fact that those looking to exit are unable to find buyers at the price sought by them.

"Overall the MF industry is in a dilemma after SEBI turned its attention to the MF industry to make it more transparent. Distributors are now preferring to sell insurance products," SMC Capitals equity head Jagannadham Thunuguntla told PTI.

"The margins of existing players are getting squeezed. Although there are a lot of players on the block, but there are few takers for them," he said.

Among the existing players, at least half a dozen are exploring ways to partly or fully selling their stakes, a senior official at a leading fund house said.

The mutual fund industry lost 16% from its average assets in June, taking the total to near Rs ,75,000 crore, as per the data available with the industry body Association of Mutual Funds in India (AMFI).

On the regulatory front, SEBI has been working hard to make the business investor-friendly, but some of its steps, such as abolishing the entry load and crackdown on agents' commission, are being blamed for having actually worked against the industry.

Sales of equity schemes of MFs have been hit worse, after SEBI banned mutual funds from charging investors to pay fees to distributors.

Last month SEBI chairman CB Bhave said that the MFs needed to look at how investors benefit from investing in their products, rather than create an incentive structure that suits them.

Although the industry players agree to weaknesses in the way they function, they are also blaming regulatory actions.

At a recent summit, AMFI chief H N Sinor said that the industry has lost its growth momentum after recent regulatory changes and the polices needed to be reworked.

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Industry grows by 11.5% in May

The growth has been attributed to good showing by manufacturing, particularly capital and consumer goods

Industrial output, as measured by the Index of Industrial Production (IIP), rose by 11.5% in May — growing in double digits for the eighth straight month — on good showing by manufacturing, particularly capital and consumer goods. In comparison, industry grew by 2.1% in May last year, reports PTI.

The manufacturing segment, which constitutes around 80% of the IIP, grew 12.3% in May against 1.8% in same month last year, according to the official data released today.

Within manufacturing, capital goods production rose by 34.3% in May against a negative growth rate of 3.6% a year ago.

Consumer durables output rose by 23.7% during the month under review against 13.2% in the same period last year.

The other two sectors, mining and electricity, expanded by 8.7% and 6.4% in May, respectively against a growth rate of 3.4% and 3% in the same period last year.

According to the data, of the 17 industries, as many as 15 showed positive growth in May.

The industrial output for April was revised downwards to 16.52% from provisional figures of 17.6% earlier.

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