Page 19 - BANKING FINANCE JUNE 2016

MUTUAL FUND

Restrictions on redemptions from MF may be imposed Mutual funds manage to
under conditions: SEBI keep 20-yr streak con-
tinuing
The Securities and Exchange Board of India has directed that restrictions on
redemptions from mutual funds may be imposed India's equity mutual fund schemes,
when there are circumstances leading to systematic with over two decades of track
crises that constrict market liquidity. record, have made hefty wealth for
investors. Investments made through
The market watchdog has banned restrictions on re- the monthly systematic investment
quests to redeem up to Rs 2 lakh, a move aimed at plans, popularly known as SIPs, are
protecting the interests of retail investors. Where re- at multifold valuations currently.
demption requests are for amounts above Rs 2 lakh the first Rs 2 lakh needs to This explains the fact that the longer
be redeemed, with the remainder being held back. the investors stayed, the more is the
wealth creation, irrespective of the
SEBI's circular said restrictions can be imposed on redemptions "when market market fluctuations. The Indian mu-
at large becomes illiquid affecting almost all securities rather than any issuer tual fund sector, still considered to be
specific security". It also clarified that restriction on redemption due to illiquid- in nascent stage, given the poor pen-
ity of a specific security in the portfolio of a scheme due to a poor investment etration of its products, is home to
decision will not be allowed. several schemes which have a rea-
sonable and respectable perfor-
SEBI favours direct MF sales in online platform soon: mance chart for a period exceeding
UK Sinha 20 years.
Some of these schemes include
SEBI has said it is in favour of a model where investor buys Franklin India Prima, Franklin India
these products directly without any middlemen and a new Prima Plus, and Franklin India
online platform for buying and selling these instruments Bluechip from the stable of Franklin
would be in place very soon. Templeton Asset Management Com-
pany (AMC); HDFC Capital Builder
The distributors and financial advisors have been lobbying and HDFC Equity from HDFC AMC;
hard against mandatory disclosure of commissions by fund houses, which have Reliance Growth and Reliance Vision
also been asked by the regulator to disclose to investors salaries and other from Reliance Mutual Fund; and ICICI
payouts to top management. Prudential Multicap Fund from ICICI
Prudential AMC.
"We should worry more about the investors than about those doing business of All these are 20-year-plus funds and
mutual fund distribution. Globally, the mutual fund is moving towards direct have made handsome annualised
buying. Anyway, IFAs account for less than ten per cent of mutual fund industry's returns of as high as 23 per cent for
asset under management," SEBI Chairman U K Sinha said. investors.

He said the mutual fund space has been seeing some encouraging trends in
recent years and in just three years, the AUM has more than doubled to over
Rs 14 lakh crore, while the number of folios has crossed 4.8 crore.

Passive investing is taking over the money manage-
ment world

Exchange-traded funds, which simply track an index, have hovered up assets at
a rate over the past decade. The funds, which are low cost, tax efficient and
offer liquidity and transparency, pose an existential threat to the mutual funds
industry. Actively-managed mutual funds charge higher fees and have struggled
for performance of late.

"ETF share in the US is 15% today, but we think it could eventually reach 40-60%
over the next ten years," Credit Suisse analysts led by Craig Siegenthaler said.

BANKING FINANCE | JUNE | 2016 | 19

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