For mutual fund CEOs looking ahead into 2013, there is much to be optimistic about, after many years. In fact, while 2012 was a year of challenges, a lot of opportunities too were created in that year that should pan out well for 2013.
As we move into the new year though, the expectation is that mutual fund investors will take a fresh and positive view on equity investments. This is the tax saving quarter and the optimism around the equity markets should see much renewed interest in the ELSS category. An opinion poll on www.cafemutual.com suggests that distributors seem keener to promote ELSS over insurance and government savings such as PPF.
The much awaited tweaking of Total Expense Ratios (TER) came through in 2012. Fungibiity of expenses came as a shot in the arm for AMCs, making accounting for expenses a lot more efficient and increased accrual of management fees a reality for most AMCs. To top that, SEBI permitted the service tax element to be charged to the investor providing a significant relief to AMCs financials. This should help many AMCs put more muscle behind the promotion of mutual funds in general.
KYC process was made applicable to a wider customer base and the process itself was made more elaborate for even those who had earlier fulfilled the KYC requirements. Of course, this does make it more operationally difficult now. But there are noises being heard in government circles about making bank account opening KYC as a common and applicable KYC fulfilment for mutual funds. If that were to happen, the mutual fund industry’s KYC woes would be left behind quite quickly.
The debt markets did not provide the impetus anticipated in line with the expectations of easing of interest rates, which did not happen. RBI was juggling a number of issues that left returns from debt funds less attractive for investors. But the good news is that the RBI seems certain to start the reduction of the interest rate cycle as early as January 2013. That should bring more energy into debt oriented funds especially bond funds, gilt funds and MIPs and could turn out to be the big opportunity for the industry to add more retail investors, maybe first time mutual fund investors - certainly a positive development to look forward to in 2013.
2011-12 saw the financials of many mutual funds turn around for the better. Better profits for many, lower losses for some others - all in all, leaving AMCs and their shareholders feeling more comfortable about the business situation.
There were a number of regulatory changes in the investment process and disclosures brought in to further protect mutual fund investors. While this puts some pressure on the investment operations in the immediate term, over the coming months these changes will help reassure existing and potential investors about the constantly evolving risk mitigation measures being put in by the regulator.
Gold had a very good run through 2012. In an effort to capture this run up, investors flocked to gold ETFs and FoFs of gold ETFs that mutual funds launched in 2011 and 2012. AUM under such schemes rose to levels of Rs. 12,000 crores in 2012. Even as questions about gold outpacing equities in 2013 abound, Indian investors’ love affair with gold is expected to continue to grow the AUM in gold related mutual fund schemes during 2013.
One big step taken for increasing the penetration of mutual funds in smaller towns has been the incentive of an additional (upto) 30 bps in the TER provided by the regulator. This is applicable for business generated in the B-15 towns (or those below the Top 15). This could a long way in increasing the activity levels of mutual funds beyond the Top 15 towns where it is currently concentrated. Efforts have already started and 2013 should see a significant accretion of folios from such towns.
Penetration levels are expected to go up as AMCs implement the investor education guidelines put in place by SEBI wherein, AMCs have to direct 2 bps of their AAUM to investor education related activities. At an industry level this translates to potential spends of around Rs. 150 crore at current levels of AAUM.
Overall, there are a lot of things to look forward in 2013. It could really be a year when the mutual fund industry turns around for investors, distributors and AMCs alike. Looks like a lot of people out there share this optimism. Nearly 80% of participants in an ongoing opinion poll on www.cafemutual.com believe that 2013 will see a turnaround in the Indian mutual fund industry.
Cheers!
Rajan Krishnan is one of the most seasoned mutual fund professionals in the country with over 18 years of experience. In his last assignment, he was the MD of Baroda Pioneer AMC.
