The year 2020 was quite an eventful for the MF industry. While the industry has seen equity markets falling sharply in the initial phase of the covid-19 pandemic, it is recording new highs as the year end approaches. In addition, SEBI’s guidelines on registered investment advisors, Franklin Templeton MF’s decision to wind up 6 debt schemes, ban of upfront commission in PMS and entry of new players to the mutual fund industry also made 2020 an eventful year.
As we get into the new year 2021, let us quickly recap the key events of 2020.
Covid-19 pandemic
Covid-19 pandemic has changed the way MF industry and MFDs approach their businesses. Be it office setup, transactions or meetings, everything has shifted to digital. Over the period of 9 months i.e. from April to December, the industry has hosted many digital events to engage with their target audience on a regular basis.
Market volatility
Year 2020 witnessed unprecedented market volatility. In January, the markets touched an all-time high. But as the covid-19 pandemic gripped the country and nationwide lockdown came into force, equity markets plunged by 30%. The markets, however, again started touching fresh highs by the end of 2020 as the lockdown restrictions were removed gradually amid signs of recovery in the economy.
Name change
MF distributors are no longer allowed to use nomenclatures like ‘independent financial advisers’ (IFAs) and ‘wealth managers’. Further, with SEBI’s new regulations on investment advisors, individuals can now either become RIAs to offer fee based services or opt for a mutual fund distribution model to charge commission.
New entrants
Trust Group, a financial services company, has forayed into the mutual funds business by launching Trust Mutual Fund. The AMC has appointed Sandeep Bagla as its CEO.
Besides, there are many players who have shown the interest to foray into the MF industry. One of India’s largest financial services companies, Bajaj Finserv has applied for an MF license. Zerodha Broking, Karvy Stock Broking and Frontline Capital Services are also being reviewed by SEBI. NJ India has received SEBI’s in-principle approval to float MF business.
Mukesh Ambani’s Reliance Jio Infocomm is also likely to enter the mutual fund distribution business by using JioMoney, which is Reliance Jio’s digital payments platform to distribute mutual funds. Meanwhile, Yes Bank has exited the MF industry and sold 100% of the equity shareholding of Yes AMC to GPL Finance and Investments Limited (GPLFI) which is owned by White Oak Investment Management.
Big bang changes in PMS
SEBI banned upfront commission in PMS. The market regulator also asked the PMS industry to move to a trail commission model like the MF industry to compensate distributors. Further, in order to check mis-selling and ensure that PMS distributors follow high ethical standards in dealing with clients, SEBI asked distributors of PMS to disclose trail commission to clients before selling PMS.
Cricket to promote MF
AMFI signed cricket stars to promote the 'Mutual Funds Sahi Hai' campaign and create awareness about mutual funds. Icons like Sachin Tendulkar, M S Dhoni, Mithali Raj, Rohit Sharma, Shikhar Dhawan, Jasprit Bumrah and Shreyas Iyer were signed for this awareness drive. In fact, AMFI became the associate sponsor of the Indian Premier League 2020 as well.
New taxation structure
Budget 2020-21 proposed a new tax regime. It gives taxpayers the option of lower tax rate slab if they forego various exemptions and deductions. This put ELSS in the spotlight as the category has been among the favourite tax-saving options of mutual fund investors under section 80C.
TDS on mutual funds
Budget 2020-21 asked fund houses to deduct 10% of TDS from dividend income exceeding Rs 5000 from mutual funds. This coupled with removal of DDT that shifted the burden of paying tax on dividends from companies and fund houses to investors has made dividend options for investors less attractive.
Franklin episode
Franklin Templeton MF decided to wind up its six debt schemes - Franklin India Ultra Short Bond Fund (Rs 10,147 crore AUM), Franklin India Low Duration Fund (Rs 2,563 crore AUM), Franklin India Short Term Income Plan (Rs 5,500 crore AUM), Franklin India Income Opportunities Fund (Rs 1,700 crore AUM), Franklin India Credit Risk Fund (Rs 3,604 crore AUM) and Franklin India Dynamic Accrual Fund (Rs 2,536 crore AUM). Following this, some investors took it to the courts and the Supreme Court is hearing the case.
Scheme re-categorisation
SEBI introduced a new fund category in the MF industry - flexi cap funds. This new category will be in line with the erstwhile multi cap fund. In flexi cap funds, fund managers can take equity exposure of at least 65% across market capitalisation. In multi cap funds, SEBI asked fund houses to invest at least 75% of the total fund corpus across market capitalisation with at least 25% exposure each to large cap, mid cap and small cap stocks.
To make some of the debt fund categories safer, SEBI redefined corporate bond fund, credit risk fund and banking & PSU fund. In these three debt fund categories, fund managers can now increase their exposure to safer debt securities like g-secs and treasury bills by 15%.
Listed
Two major players of the MF ecosystem got listed on stock exchanges this year. UTI AMC became the fourth fund house to get listed on BSE and NSE after Shriram AMC, HDFC AMC and Nippon India MF. India's largest registrar and transfer agent (RTA) of mutual funds, Computer Age Management Services (CAMS), also got listed on stock exchanges.
