IFAs share in mutual fund assets declined from 33% in FY 2008-09 to 24% in FY 2012-13, shows a recent report on ‘Indian Mutual Fund Industry – Navigating Through Tumultuous Waters’ published by Celent.
The report attributed this decline to entry load ban. It says, “With the banning of entry loads, many independent financial advisors (IFAs) have stopped selling mutual funds, and their share has come down from 33% in 2008–09 to 24% in 2012–13. The other three channels—banks, large distributors, and direct sales—have gained share at the cost of IFAs, although the gain for banks and distributors has been marginal. Banks by far are leaders in earning commission from distribution of mutual funds, with seven of the top 10 commission earners being banks. We believe foreign banks and private Indian banks with a focused approach to mutual fund business are better suited to earn commission revenue than nationalized banks that have large branch networks.”
Of the 83,000 registered IFAs, barely 15000 distributors are active. Many IFAs have started selling other financial products like life insurance and health insurance products.SEBI has allowed a new class of distributors—postal agents, retired government officials, and teachers—to sell mutual funds after fulfilling some basic criteria. However, the impact of this change is likely to be marginal, says the report.
The report observes that a number of IFA associations have been formed to organize the highly fragmented individual advisors and promote their interest. While it is easier for banks and large distributors to influence decision-making pertaining to the industry, it is difficult for individual advisors to protect their interest. The IFA associations formed thus far are highly localized or regional in nature, but may lead to bigger organizing efforts from the IFA community in the future, according to the report.
Though share of direct sales saw a growth of 6%, the investors still need guidance and advice in choosing right products, states the report.
|
Shares of different participants in distribution of MF Assets |
For FY 2008-09 in % |
For FY 2012-13 in % |
Change in % |
|
Banks |
30 |
32 |
2 |
|
Large Distributors |
30 |
31 |
1 |
|
IFAs |
33 |
24 |
-9 |
|
Direct Sales |
7 |
13 |
6 |
