Identifying potential RGESS customers remains a big challenge.
Fund houses are leaving no stone unturned, to get maximum investors in their new fund offer of RGESS. Once these new fund offers close, these schemes will be listed on stock exchanges. Hence, fund houses won’t be able to garner incremental inflows in their RGESS. Unlike fund houses which have made their existing schemes RGESS compliant, fund houses which have launched exclusive RGESS have to keep launching successive versions every year. Thus, such AMCs have no scope to garner incremental inflows due to close ended nature of these products.
Since RGESS fall under equity category, these schemes will have to collect at least Rs 10 crore from their NFO.
Cafemutual spoke to fund houses which are about to close their RGESS NFOs this week to get an idea on how these products were faring in the market.
Many AMCs are confident of collecting far more than the minimum SEBI requirement of Rs 10 crore. “We are targeting 4000-5000 applications and an amount between Rs 20 to Rs 25 crore from the NFO. Most of our distribution partners are looking at this as an opportunity to attract new clients. Also, there is client declarations that will be verified at the back end by NSDL/CDSL for existing demat account holders,” said Ajit Menon, EVP, DSP Black Rock Investment Managers.
“We are targeting to get at least 35,000 applications. The biggest difficulty is in identifying these first time investors,” said Debashish Mallick, MD & CEO, IDBI Mutual Fund.
LIC Mutual Fund is targeting to collect Rs 25 crore from its RGESS by 8th March 2013, the closing date for its NFO from about 60,000 new investors in the scheme. Some AMCs are identifying these investors on the basis on income tax returns. “I think collecting Rs 10 crore won’t be an issue,” said a sales head of a large AMC whose NFO is about to close.
AMCs and distributors continue to face hurdles. “Investors have been asking why DP account is required for the investments made through mutual funds. Opening a DP account, sending data to NSDL/CDSL for verification if investor is first time investor and then collection of remittance is time consuming and also involves cost. Assuming an average upfront commission of 4%, the IFA gets Rs.2000 per application for applications of Rs.50000 which is not quite attractive proposition for IFAs. Secondly the scheme was announced late and most of the tax payers already have made their tax planning/ payments for the fiscal year 2012-13,” said Nilesh Sathe, Director & CEO, LIC Nomura Mutual Fund.
AMC officials say that fund houses which have tweaked their existing products like an ETF are in a better position as compared to those who have launched an exclusive close ended RGESS. According to them, if a new RGESS manages just the bare minimum requirement of Rs 10 crore in the NFO period, it will be stuck with this corpus.
Fund houses which have made their existing schemes RGESS are not required to collect Rs 10 crore.
“It is better to start off by making your existing schemes RGESS compliant and study investors’ appetite. A close-ended RGESS cannot increase its corpus and a new series or fund has to be launched every year,” said Jimmy Patel, CEO, Quantum Mutual Fund.
Fund houses like MOSL, Quantum, Goldman Sachs, Kotak, Religare, Reliance, SBI MF, India Infoline have made their existing schemes RGESS compliant. On the other hand, DSP Black Rock, IDBI, LIC Nomura, UTI and HDFC have launched exclusive RGESS. These funds are to close for subscription on 09 March 2013.
Birla Sun Life Mutual Fund has both, an ETF complying as RGESS - Birla Sun Life NIFTY ETF and Birla Sun Life Rajiv Gandhi Equity Savings Scheme - Series 1 which closes on 20 March 2013.
