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A report released by Motilal Oswal Financial Services reveals that HNIs have been favouring fixed deposits over mutual funds. The report attribute this to change in taxation of debt mutual funds and lacklustre performance of debt funds over the past few years.
The company said, “Although HNIs comprehend the advantages of mutual funds over other financial products, past problems in this sector still concern them.”
The company said that it interacted with a few large MFDs having an AUM of over Rs.1000 crore and institutional sales representatives to examine customer behaviour in the current environment. “One of the distributors cited that he has never lost a customer for poor returns in the equity segment but has definitely lost customers because of weak returns in the debt segment,” the report said.
HNI flows into equity funds remains muted
Here are the other key findings of the report.
Equity flows: Redemptions have been steady and most distributors were of the opinion that redemptions would increase once the broader indices cross certain thresholds. However, fresh lumpsum inflows have been difficult to come by. The trend is more pronounced in the high-ticket segment. HNIs have been preferring PMS and AIFs as they find MF products commoditized.
SIPs: The trend remains robust, particularly within the retail segment, where the average investment amount has been decreasing. This is encouraging for distributors as it indicates that new customers are joining at an accelerated rate. It has been somewhat difficult to maintain higher ticket SIPs among HNI customers as the returns on SIPs over the past three years have been minimal. As a result, the HNI segment has experienced lower renewal rates of SIPs.
Retail customers still elusive to the passive space
Passives: There is an increase in enquiries regarding Index funds. However, distributors are not marketing these products aggressively. The possibilities of generating alpha over the benchmark indices in case of a broad market rally continues to be the selling pitch of equity funds over index funds. Commission on these products can range between 25bp and 40bp v/s 90bp and 100bp for the equity schemes. The expansion of passive investment options in the retail market is expected to take more time.
