Now, banks blamed for continuous equity mutual fund outflows!

While banks indulge in mis-selling mutual funds, as Moneylife had warned 10 months ago, it is far-fetched to blame them for steady equity mutual funds outflows and not SEBI’s hasty and utopian rules on mutual fund selling

Almost 15 months after the Securities and Exchange Board of India (SEBI) set in motion extensive changes as to how mutual funds are sold, and well after the regulator's hasty changes started affecting both the fund industry and the investors, the media has started to get agitated against just one of the fallouts of the sweeping measures-how the national distributors are leading investors up the garden path. According to two business newspapers, banks are encouraging retail investors to churn their portfolio, which is leading to lower gains for investors.

Banks are motivated to do this because of SEBI's rules for selling funds. According to the rules, fund companies cannot pay upfront commission to distributors at the expense of fund investors. They can get upfront commission from fund companies and trail commission on assets that their customers have kept with the fund. Banks have discovered that they make more money from the asset management companies on fresh investment (upfront commission of around 1%) and make less if it is a continuing investment (around 0.5%). If banks can get customers to buy and sell three times a year (which is churning), they make 3%, whereas if they encourage investors to buy and hold over a year, they would get only 0.5%. This is what they seem to be doing.

Mis-selling by banks as a possible fallout, (one of the many, as a result of SEBI's changed regulations), may be a surprise to both the regulator and the media, but not for Moneylife, which documented this 10 months ago based on feedback from the Independent Financial Advisors (IFAs). But at that time, neither the fund companies nor the regulator (much less the media) seemed concerned. Now, the regulator seems to have woken up to this obvious consequence of its actions and is bleating that the Reserve Bank of India (RBI) should come down on banks to stop them from churning investors' portfolios.

The Mint wrote on Tuesday last week, "Retail investors, advised by large banks and distributors, exited mutual funds (MFs) after entry loads on these were removed and even as the stock markets continued to rise. Meanwhile, high net-worth investors (HNIs-those who invest more than Rs5 lakh per folio) and those who invest directly with fund houses have stayed invested, benefiting from rising equity markets. Bankers and wealth managers attribute this to the end of entry loads (costs charged to investors upfront at the time of investment, that were eventually passed on to agents as commission), which have meant that large sellers of MFs no longer have incentive to push the product." On Monday, The Economic Times reheated the same information and served it up with a comment: "The ingenuity of national-level distributors appears to be neutralising much of market regulator SEBI's efforts to curb mis-selling of mutual funds to investors."

These reports paint a picture of a well-meaning regulator being undermined by nasty and greedy banks. We had mentioned several times, based on the feedback from IFAs, that the series of actions SEBI took would lead to precisely this. In fact, we had pointed out in January how Axis Bank was charging Rs225 to investors without their consent to the New Fund Offer of Axis Mutual Fund, without the customers knowing about it. (Read http://www.moneylife.in/article/8/3717.html) When the Axis Bank practice came to light, Moneylife argued that "this puts a different light on the entire issue on how distributors can charge their customers." SEBI banned entry loads in August 2009, arguing that customers must have the option to negotiate and pay what they can to distributors. But the Axis Bank move underlined the fact that while it is laudable that customers must have the ability to decide for themselves what they are paying for and how, it is a utopian idea in practice. In reality, distributors who have a strong relationship with customers in some manner or the other and an ability to charge them, will get away by doing exactly that. Customers may neither notice nor protest. Since commercial banks enjoy a relationship of trust with their customers, they may misuse it. This is simply because, with long years of experience of watching both regulators and banks, Moneylife editors had pointed out that banks have often abused the trust in the past, when they have debited millions of customers for a service that they have not asked for. The most notable is the example of Citibank which debited some amount from its customers' accounts for an insurance policy, the Suraksha scheme, which they had not explicitly consented to buy.

We had pointed out that this practice would spread into fund selling and SEBI would not be able to regulate banks. Neither does it have a foolproof mechanism to regulate the distributors. SEBI regulates fund companies. However, funds would not exactly be bothered by any abuse of trust by banks; they would be keen to raise as much money as possible-no matter how a distributor sells a scheme, we had pointed out. Also, many mutual funds are sponsored by banks. We asked, way back in February: "Why would a fund complain about any malpractice? The Reserve Bank of India would also not be concerned."

This is exactly how it has played out to the utter surprise of SEBI, which had pushed a utopian regulation down the throat of the fund industry without thinking it through.

After SEBI implemented a series of changes governing the selling of mutual funds, and then tried to implement a patchwork of futile solutions, money continues to flow out of mutual funds. Between August 2009 and October 2010, Rs24,330 crore has gone out of mutual funds. All this, while SEBI and fund companies have argued that this haemorrhage has nothing to do with SEBI regulations, but investors booking profits. While this no longer washes, pro-SEBI commentators have now found another villain: banks encouraging churning.

Unfortunately, even this does not explain why churning by banks should lead to large continuous net outflows from funds. Unless SEBI admits that it has forced a set of regulations without thinking through the consequences, healthy growth of the mutual fund industry seems a remote possibility.

Meanwhile, let's hope that a trigger-happy SEBI does not try to cure the disease by attacking the symptom and banning distributors from churning more than once a year, as another of its pro-investor moves!
 

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    COMMENTS

    BIPIN

    9 years ago

    Top Axis Deck sent home by giving a Non Ceremonial Exit by New MD & CEO

    All is not well with Axis. Refer ET 13/12/2010 where in two presidents Mr. Rajgopal Srivasta & Mrs. Manju Srivasta ( pillars of Axis ) have been sent home by giving a non ceremonial exit in the form of Early Retirement.

    More VP, SVP & Presidents are in line for non ceremonial exit and news is that all those who where close to Dr. P J Nayak & Mr. Heman Kaul, will be forced to take ERS ( early retirement scheme ) or will be transferred to remote location.

    New MD & CEO is using the Dr. Nayak two army chief i.e. Mr. S K Chakrabarti – DMD & Mr. S. Bhattacharya – ED (HR) to sack all those Seniors to whom they have promoted on the basis of roll number and now those two have been given the job of clearing the top deck. Groom and Kill strategy.


    Is New MD & CEO pulling the right talents from outside? Is the change good for the shareholders of Axis Bank? Only time will break the silence.

    Shibaji Dash

    9 years ago

    The relationship between a bank and its customers is not only contractual but also one of fiduciary relationship based on tust. Ethics is the very essence of such trust- I mean business and not spiritual ethics. Going by experience and what is reported, this delicate but vital aspect of the bank and customer relationship is under severe stress since the day banks were permitted to do business for their asset management companies. The knaivette of our policy makers and regulators in this matter is of astounding proportion. Just lift the corporate veil of the banking company and its asset management company. What does one see? The economic and financial reality hidden behind the two apparently seperate corporate entities is that it is the same set of people managing both the business of banking and mutual fund with the money of the customersand prifiting at their cost without any recompense for the customers.If someone argues that the banking company and its asset management company are two seperate corporate entities, then he is arguing that Mr. Tweedledum and Mr. Tweedledee are two different persons. The bank is of course playing the money game according to the rule book.The rule book must therefore be amended.Our policy makers /regulators of all kind appear to be learning nothing from the why's and hows of the Great American scam that continues its nightmarish blood bath unabated.They appear to be too self absorbed to recall the grandma advice: prevention is far easier because cure would be too expensive . Banking business must be delinked and seperated from mutual fund business.
    As regards the issue of debarring the IFAs, SEBI's decision was a great Himalayan blunder. If according to some it was a utopian decision, the turth is it was based on an inadequate understanding of how humans- whether a banker or an MF agent or the 'retail investor'- behave in the money making game. That decision has created a dystopia- the opposite of utopia.

    AHJain

    10 years ago

    SEBI must ban on Banks for selling MF and RBI on Insurance.Both products(MF & Insurance )are selling wrongly by Bankers in India.The personn who is selling is not AMFI passed or IRDA Examassed for selling these products, (this is the fact in Tier II cities , and in Rural India)Manager comes to party and asked them to buy such & such Ulip Insu. or MF NFO for which their H.O. has given target.

    madx

    10 years ago

    THERE is a strong need to BAN banks from selling MF. Reasons given below:

    1) Banks have vested interest that investors sell his MF and keep money with bank either in savings or FD.

    2) They can deduct whatever amount from his bank account for service, which is not rendered at all as bank never approach investors, it is investors who come to bank for their banking transactions and Bank staff loaded with stiff targets lure them to MF or Insurance.

    Where is the level playing field for small retail distributors and Giants like bank and big brokerages?

    AMFI, SEBI and AMC need to look into competition between Giants like banks and Pygmies for the same business.

    Financial inclusion means approaching customers having no banking but for investment in MF bank account is a pre-requisite.

    I would like narrate high handedness of HDFC bank branch in Mumbai. It dishonoured cheque of one of my investor name 'Sanjay Waghmare' and when he inquired he was handed over fresh application with banks ARN-printed. Same was the case by SBI branch in Chennai. My investor approached to deposit application with my ARN. He was forced to fill new application with Bank's ARN. This investor is Narendra Kumar and investment is Magnum Taxgain.

    Is there anybody such that SEBI or AMFI or RBI listening? Is it possible to curb such unethical practice by banks?

    So there is no way out except Banning bank to works as agent of MF.

    REPLY

    BEIP FORUM

    In Reply to madx 10 years ago

    Dear Madx, we fully agree with you, In Axis Bank also the pressure on staff including the Branch Head is tremendous. Employees have forgotten the basic banking and have been forced proxy agents misselling Metlife, Max NY Insurance and frequently churning the portfolio of the investors in order to achieve the banks fees income target.

    Due to Insurance pressure branch employees started fraudulent activities such as encashment of unclaimed Demand Draft, Pay Orders, increasing the expenses bills, debiting customers account by forging the signature of the customer etc.

    So it will be better if banks do their own business, or else permit the insurance companies to cross sell Banks FD and let the bank pay commission to Insurance Companies or its agents.

    krish

    10 years ago

    trail commission and upfront commission, though not charged to investors should go back to investors and not distributors. majority of distributors have cheated investors since private mutual funds started. it is time investors are given back for mis-selling by 80% of distributors since 1992-93 and enjoyed hundreds of crores overall in commission from investors.

    same thing should go for insurance companies who have passed fat % to agents by collecting from insured.

    both mutual fund distributors and insurance agents are creation of middle men by the respective industries and only 10-20 % real gain has happened to invstor public.

    what SEBI did in banning commission to MF distributors should have been done in the beginning itself.

    too little done too late!

    REPLY

    jay

    In Reply to krish 9 years ago

    how rightly said. Why should there be agents at all. WTF lofty socialist mindset. You should start buying from your ration shop all insurance and mutual funds with a limit on how much you can buy. You will get it free, excellent service at least cost.

    KESHAV B BHAT

    In Reply to krish 10 years ago

    Dear Mr Krish,
    Congratulations Mr Krish, if every one thinks in this world there is no necessity for money as everyone will work for free and everything will be available free of cost so where is the necessity for earning or saving or wealth creation. May god bless you and make you the savior of mankind
    Regards,
    Keshav B Bhat

    shankar

    In Reply to KESHAV B BHAT 10 years ago

    There is nothing talking with people like krish because those type of people are insane and paranoid.........

    girish prasad

    In Reply to krish 10 years ago

    i wll be very happy to work with you specially because i hope that you are giving all your services free of charge. you are not taking any renumeration from employer. you never charges any expense while giving services because you are also getting petrol food all free but not all distributors not .there working schedule is .1.visit the probable investor and explain them about mf
    2.after few days make enqiry and visit with forms take his sign and papers after filling it.
    3. submit it to pos or center and follow it till investor get the statement .
    4. review it time to time ang prompt reply to keep the investor intact.
    5.help the same way as collection and submission of form from home.
    and if you are ready to do all this free of charge then you are wellcome.atleast you collect all form and submit at all center for free of charge and if not then you decide who is cheater?

    shankar

    10 years ago

    SEBI know every thing....But keeps quite....The reason is best known to SEBI....BHITAR KA MAMLA HAI.....

    Stephen Noel DSouza

    10 years ago

    I think the word ‘UTOPIAN’ is most appropriate. The fact is that worldwide mutual funds are not sold in this manner. It is very awkward to bill a person and how is one to bill ones parents, brother, sister, relatives, close friends, doctor etc. – also how is one to send a bill of a big amount of Rs. 1 lac etc. So mutual fund distributors prefer not to do business rather than get involved in these awkward situations. Also billing is a very tedious and time consuming process for which there is no software available. Billing on SIP’s is almost impossible and economically unviable especially when the sip is for a small amount of around Rs. 1000. On the other hand if the billing process is skipped (as is the case with 95% of the distributors) then mutual fund distribution becomes unviable. So the distributor is between the devil and the deep blue sea. SEBI is totally to blame for this mess. What is surprising is that the Government has been watching this slide and doing nothing about it for more than a year.

    Shibaji Dash

    10 years ago

    Axis Bank's business culture has drastically changed in last one year or so - I was told by a friend who has since moved out to a PSU bank. Axis according to my friend is not what it used to be.I'm therefore not surprised to view these comments though I feel sorry. After all it was very thoughtfully and painstakingly built up over the years. Today I'm told the employees are being driven up the wall.

    REPLY

    SANJAY PRABHU

    In Reply to Shibaji Dash 10 years ago

    Axis Bank cannot retain its own employees and hence their branches are in big trouble with serious operational issues, frauds, due to lack of staff accountability since inception.

    As the bank has started loosing the CASA & Retail Term Deposit due to loss of customers trust on the bank, and hence the Bank has started image rebuilding exercise by spending crores of rupees on TV commercial especially on Amitabh Bachchans show Kaun Banega Crorepati which is one of the costliest time slot with Associate sponsorships at Rs 8 crore plus 10-second spots at Rs 1.2-1.75 lakh and the bank is spending more than 15 cores at whose cost? Naturally investors / depositors and hence RBI should restrict / put limits on commercial advertisement expenditure made by the banks.

    Issued in Investors Interest

    v subramanian

    In Reply to Shibaji Dash 10 years ago

    A new CEO brings a culture that was prevalent in the previous organisation. This may not always build a conducive environment particularly in Axis Bank which has a public sector culture of its parent.

    KESHAV B BHAT

    10 years ago

    Dear All,
    I got a call from one of my client saying his bank has sent him a letter saying to submit his passpot copy and PAN card copy immidiately (the Bank is a leading international BANK) to enable them to make his investments mutual funds etc. He called me asked me what can be the matter as KYC was already veryfied. I advised him to go and meet the bank officials and tell them his KYC is alrady done and can be checked on net.
    When he went to the BANK the concerned official said they want to open an investment servics account for him and will do his invest ment in G SEC funds with a guarenteed return of 55% (annual). I told my client that I donot have any G SEC fund which is giving a return as high as 55% annually. Can any one tell me is there any such G Sec fund in INDIA.?
    Mr Bhave, savior of investors can you tell me how this type of activities by Banka are allowed, and lot of non resident Indians are duped in the day light (most of these people sign on the blank forms given by the bank officials and even do not know for what these papers are used.

    regards
    Keshav B bhat

    REPLY

    girish

    In Reply to KESHAV B BHAT 10 years ago

    from ministers to govt peons are allowed to do malpractices you are not .dont surprice this is start only.

    madx

    In Reply to girish 10 years ago

    Why blame govt. staff or minister alone when there are so many malpractices in the private sector? After all size of private employees is many times the govt. staff by now.

    bhaskar

    In Reply to KESHAV B BHAT 10 years ago

    bhat sir, have the courage to name the bank.do not let them go away like this.it must be HDFC bank where i have seen a non ARN holder selling mutual funds(nfo) and the customer buying it.later i asked that client why he bought it."bank ke saath relation rakhne ki majboori hai,kuchch fayda hote hee nikaal loonga."do you think afool like bhave will ever analyse the situation?

    S Pramod

    In Reply to bhaskar 10 years ago

    Its not HDFC but Axis Bank adopts such type of tricks to catch a fish in the net.

    rajendra

    10 years ago

    SEBI is not ready to accept its mistake. This ego problem is hurting mutual fund industry and consequently the economy. So, in national interest, all the SEBI men should be shown the door and tried in court for destabilising Indian economy. They have severely tarnished the image of India Shining.

    Nagaraj

    10 years ago

    If the security code does not match, why should it erase the comments drafted by me after taking so much of time and mind application ?
    Please correct this mistake.

    Amalaraj Marian

    10 years ago

    The fact is that the regulator instead of taking a direct route went about beating round the bush. The regulator is sitting on a pile of records which if shifted properly will give the exact details of what an individual participant is upto. The Regulators shot in the dark was started when some of the large players earned huge amount of commissions and there was no increase in the fresh business. Now we are back to the square one. Each RTA generates records which shows very clearly the ageing of the assets that are managed by the participant. The industry average ageing is about 18 months the IFAs should have ageing which will be upwards of 24 months. Anyone who will not be matching these numbers should have been called up and made to explain. Since The regulator has the power to do so along with the AMFI.
    I don't understand how the knowledgeable dealt the situation in an amauter manner or was it that it was powerless in front of the other regulator or was there some more sinister motive.............

    REPLY

    SANJAY PRABHU

    In Reply to Amalaraj Marian 10 years ago

    Axis Bank is known for all types of frauds and they declare 70% growth by looting the public. They debit your account without the consent and knowledge of customers, through fraudulent signatures. So i request all the Axis Bank account holders to check your account for debits if any without your consent, especially for Insurance, Mutual Fund and ATM Cash withdrawals

    For modus operandi please click on the following links

    http://www.caclubindia.com/blog/pune-ban...

    http://www.caclubindia.com/blog/letter-f...

    http://www.caclubindia.com/blog/will-rbi...

    http://www.caclubindia.com/blog/strategy...

    http://www.caclubindia.com/blog/axis-ban...


    Majority of the Axis Bank branch employees are already under tremendous pressure of handling customer complaints & frauds popping up daily at one or other branches, collapse of the operational systems due to staff resignation and failure of HR polices, tremendous business pressure of mis-selling Max New York Life Insurance and on the other side involvement of central and zonal offices in various frauds with the Govt Accounts, Defense Accounts frauds, Defense Employee unclaimed salary A/c frauds, Defense Employee unclaimed pension A/c frauds, Retail Assets frauds, Excise & Income Tax Frauds, Capital Market frauds, IPO Reimbursement Frauds, ATM Cash Shortage Frauds of more than 60 crores, Debt Relief Fund Frauds, Unclaimed DD/PO frauds, ATM / Interior Decoration and Branch premises lease rental frauds, Issuing Fake Term Deposit to customers and government authorities at Jabalpur Bhopal & Kashipur other branches, Agri Credit Frauds, 165 crores Priority Sector Lending frauds at Bhopal and other centers, One time Loan settlement fraud at Nashik and other agri credit centers, Debt relief waiver fraud at Rajkot and other centers etc., where in the bank has breached the trust with Government of India and the State Governments. Government and the investors in general has lost the faith and the trust of erstwhile UTI Bank which transformed SOLUTIONS FOR LIFETIME to THERE'S ALWAYS A SOLUTION for business & personal growth of senior management through high level frauds.

    BEIP FORUM

    In Reply to SANJAY PRABHU 10 years ago

    AXIS BANK CFO'S SON IS WORKING FOR ERNST AND YOUNG, AND THEY ARE THE ALSO THE AUDITORS OF AXIS BANK. BREACH OF TRUST WITH INSTITUTE OF CHARTERED ACCOUTANTS OF INDIA.

    Ernest Moraes Goa

    In Reply to BEIP FORUM 10 years ago

    Private Banks should be brought under the purview of CAG ( Government auditor ) & Central Vigilance Commission , as those banks too deal with the public money and the depositors should not get any further shocks as in the case of GTB & Satyam where foreign consulting firm where involved in manipulations of Accounts & Audit statement.

    Who is next after Telecom Raja Scam?

    shankar

    10 years ago

    SEBI must come out with a law which will not allow the banks to do what they are doing now...The banks and large distributors are making money out of investor but the investors are not making out of Mutual fund investing through banks...I think the upfront that the banks get must be stooped......those must be paid to the IFA's who really work hard to keep the investors money in the market for a longer period of time.....SEBI should know that the Investors will only benifit if they go through a IFA..One more thing I want to say that in Mutual Fund their is STP-systematic transfer plan which is one of the best way to enter equity market in present scenerio but i think the banks do not ask their investors to do STP.also the banks do a SIP for 6months - 1yrs...but generally a SIP is for longer period and it helps achieve financial goals....but the banks do nothing.....Please I request Mr C.B Bhave to have a close look in this present situation and do some thing against those banks and big distributors if Mr Bhave really care about Investors......

    REPLY

    Deepak R Khemani

    In Reply to shankar 10 years ago

    Nobody is ready to listen my dear Shankar ji, The poor little retail IFA has to fend for himself without support from anyone.

    Deepak Khemani

    10 years ago

    Hey MDT guys delete that last para in the article or else somebody from SEBI might wake up and do exactly that!!!!!.
    It would however be the stupidest thing to do, wouldn't it?

    LIC Mutual Fund: House of cards

    Even as LIC Mutual Fund faces the heat over heavy losses in liquid and money market investments, its equity schemes and index funds continue to be among the worst performers in their categories

    Life Insurance Corporation of India's (LIC) mutual fund company has fallen on troubled times, according to a report in a leading business daily. With questionable investments in liquid and money market schemes, LIC Mutual Fund has notched up losses to the tune of Rs120 crore in its half-yearly earnings report. This hardly comes as a surprise given the pathetic track record across the spectrum of mutual fund schemes launched by the subsidiary of the country's largest financial institution.

    LIC enjoys the trust of millions of insurance policyholders in the country, who bank on its safe image and clean record for settling claims. Unfortunately, this has not been the case with LIC MF. For long now, a majority of LIC MF's schemes have been among the worst performers in their category and have earned a notorious reputation for underperformance and average returns.

    Here are some bare facts. Be it equity diversified funds, index funds or debt funds, LIC's schemes figure at the bottom of the performance charts in all categories. It would be hard for any fund house and its schemes to be such consistent underperformers. Among the 20 worst-performing equity funds over the past five years, as many as five schemes are from LIC. All these schemes have grossly underperformed their respective benchmarks. These include the LIC MF Tax Plan (11%), LIC MF Opportunities (12%), LIC MF Sensex Advantage (12%), LIC MF Growth (13%) and LIC MF Equity (14%).

    LIC MF has two index funds in its portfolio-LIC Index Sensex and LIC Index Nifty. It has, somehow, managed to make a mockery of the passive investing concept too. Launched in November 2002, the LIC Index Sensex has returned 15.77% over the past five years, while its benchmark, the Sensex, has gained 19% in the same period. Meanwhile, the LIC Index Nifty has delivered 14.6% returns over the past five years, compared to 19% gains by the S&P CNX Nifty over the same period. This humungous tracking error shows that fund managers have tried to time the market at their own peril. If fund managers make a hash of even passive investing, what hope would investors have of getting decent returns from its actively managed funds?

    It is easy to see that LIC's expertise does not in any way lie with mutual funds. Its performance so far has been only marginally better than JM Mutual Fund, which we identified as being the worst performing fund house in the country. (Read more about JM Mutual Fund in "Worst Fund House" at http://www.moneylife.in/article/6696.html)

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    COMMENTS

    Rahul Shah

    9 years ago

    What about JM Agri & Infra fund launched by flamboyant and controversial fund manager Mr Sandip Sabharwal? Even after 3 years of launch its NAV is below 3 whereas market is making new high.

    What we hear from Market is true? That in many fund some fund manager buy shares by taking good commision in cash from promoters/operators?

    REPLY

    Debashis Basu

    In Reply to Rahul Shah 9 years ago

    Please read http://www.moneylife.in/article/6696.htm...

    You will get this kind of articles only in moneylife

    mrs nagma goel

    9 years ago

    can you suggest some best funds to my child future.he is a boy.thanks

    Chethan

    10 years ago

    I have invested 30,000 a week back to LIC MF. Will this loss impact to my money?? Can I expect a good returns??

    REPLY

    Amit

    In Reply to Chethan 9 years ago

    bhai mere pure duniya main tere ko sirf LIC MF hi mila tha invest karne ko????...exit karo and switch to some balance fund..the best one is HDFC Balance Fund.

    Aditya

    In Reply to Chethan 10 years ago

    Please let me know which scheme of LIC MF have u invested n the date of purchase..

    Debashis Basu

    In Reply to Chethan 10 years ago

    Just wanted to understand, who led you to LIC MF? There are so many excellent funds. How did you end up buy a scheme that has not performed well so far?

    Aditya

    In Reply to Debashis Basu 10 years ago

    Please let me know which scheme of LIC MF have u invested n the date of purchase..

    Equity funds shunned, while gold ETFs are popular, even though both have risen by 20% this year

    Even as equity markets and gold have enjoyed a similar rally since March this year, investors have shown much more appetite for the allure of gold ETFs than equity mutual funds

    It is a tale of two asset classes that have evinced contrasting interest from investors. Both equities and gold have enjoyed a remarkable run since March this year, recording around a 20% jump each till now. But while the rally in stock markets has failed to enthuse equity mutual fund investors, gold ETFs have enjoyed phenomenal patronage from the investor community.

    Clearly, the equity market is no longer the preferred destination for investors here. Since March this year, the Sensex has surged almost 19% from 17,528 to 21,000 now and is now hovering around a new all-time high. Meanwhile, equity mutual funds have witnessed a torrid time. The number of equity folios has gone down an alarming 4% from 402 lakh to 386 lakh. Equity MFs have witnessed outflows to the tune of Rs21,200 crore over this period.

    In sharp contrast, gold exchange traded funds (ETFs) have been attracting investor money by the buckets, on the back of a phenomenal surge in the price of the yellow metal. Since March this year, gold prices have risen by around 21% from Rs16,232 to Rs19,970 now. The popularity of gold ETFs has soared as a result, with retail folios in gold ETFs jumping by a massive 65% from 142,270 to 235,218 over this period. Inflows into gold ETFs have surged 80% over the same period.

    Heads of various asset management companies (AMCs) have attributed the waning interest in equity mutual funds to the stretched valuations in equity markets. Investors are booking profits and getting out of the market, they argue. However, as Moneylife has been pointing out regularly, this is not entirely true as equity MFs have witnessed a steady leakage of cash for more than a year now - which has little to do with the stock markets. The ban on entry load in August 2009 has had far-reaching consequences on the industry, which has found it difficult to cope up with many of the whirlwind changes introduced by the regulator, the Securities and Exchange Board of India (SEBI).

    At the same time, gold ETFs have emerged as the favoured investment avenue for the retail population, seduced by the relentless rise in gold prices. Many investors have accepted the continuing rally in gold as a foregone conclusion and put their savings in this asset, cheered on by AMCs and their distributors.  

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    COMMENTS

    shankar

    10 years ago

    why the govt of India is not taking any strict action against this MLM companies...why? Are the govt waiting to see the scame?

    shankar

    10 years ago

    Will the editor in chief of Money life please put some light on the MLM company Unipay2u.What is going to happen to this company.I am asking because i am a IFA and many investors are now not interested in MF.they all want to put their money in Unipay2u winch is giving double in only 10 month period

    REPLY

    MDT

    In Reply to shankar 10 years ago

    @Shakar.... If your investors are not interested in MF, then there are lot of legitimate avenues for investment. Don't fall prey for a MLM company, which is bound to dupe all its investors. Hope you would have read our earlier article on the company and its 'business model'. Anyway read it here..
    Malaysian MLM company ‘offers’ 200% returns in 10 months via gold trading in India
    http://www.moneylife.in/article/81/8343....
    Take care

    shankar

    In Reply to MDT 10 years ago

    Thank you very much Dear Sir for your reply.......
    thanks a lot

    Parag Mehta

    10 years ago

    In continuance to my previous comment, America as well as Europe have been printing currency with the expectation that with more money in the hands of people, demand will be generated.
    Instead, that money is flowing into Asia. This has also been one of the many reasons for rise in gold prices.
    As Marc Faber mentioned today on CNBC-TV18, US Fed Reserve was established in 1913, when 1 ounce of gold was available for $25. Today 1 ounce of gold is available for around $1400.
    So, today what is the worth of dollar vis-a-vis gold.

    Parag Mehta

    10 years ago

    Initially, when the global funds began investing in gold, the reason was to stem the erosion in the value of their holdings because of recession in America and Europe.
    Subsequently, the rest of the pack followed, hence the rise in gold prices and not due to genuine demand of gold.
    In my opinion, investment in gold is a hedge against currency and not a hedge against inflation.
    Once, there is economic recovery in Europe or America, there would be correction in the price of gold.

    liju phili

    10 years ago

    and then the gold prices will correct a bit and the same fellows who sold their mutual funds to jump onto to the gold etf bandwagon will cry.

    the retail investor will never learn.

    jagadees

    10 years ago

    I find difficult to understand u guys. if you are telling that banning entry load pushed small distributors out of the industry. so there is leakage of money from equity mutual funds as there is no one to market the product. But who is popularizing the gold ETF's???? i guess no one. people investing because they feel tat gold price wont go down and it will act as good hedge. whereas they are not investing in equities because the scar of 2008 meltdown is still intact and they dont want to take risk. generally indian people are always "once bitten twice shy".

    Roopsingh

    10 years ago

    Is there enough gold kept in lockers as has been invested in gold related securities?in equities atleast investor knows that tata steel or reliance exist at this place-but what about these gold papers(ETF).will they deliver if all investor run to ask for physical gold?

    shankar

    10 years ago

    Equity Market Khatam.Chapter closed.A New trend has come into force-Gold.All the AMC's will be now a Jewelery Shop.

    malq

    10 years ago

    And now the Americans are talking about a new gold standard, too . . . so what happens to all the debt in dollars, then?

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