IFAs have emerged as a major channel in mobilizing money in equity assets.
IFAs control Rs. 1.72 lakh crore or 51% of the total Rs. 3.38 lakh crore equity assets as on September 2015. This data was presented by Himashu Vyapak, Deputy CEO, Reliance Mutual Fund at the IFA Galaxy event held in Chennai.
IFAs command a much higher share, as much as 66% of the equity assets if we club NDs with IFAs, since NDs appoint sub-brokers or IFAs who channelize majority of their business. Banks and NDs account for 34% and 15% share in equity assets respectively.
“Equity is a push product and requires one-on-one interaction with clients. This is where IFAs have a major advantage over banks. Also, equities have a potential to deliver higher returns as compared to other asset classes. This is why majority of IFAs sell equity funds,” says Srikanth Meenakshi, Founder-Director, FundsIndia.
Apart from equity funds, IFAs have actively sold gold funds. IFAs control Rs. 3,543 crore or 57% of the total Rs. 6,215 crore Gold ETF AUM as on September 2015. Other channels like banks and NDs account for only 17% and 26% slice of the Gold ETF pie.
“IFAs have communicated the benefits of investing in gold ETFs vis-à-vis physical gold to their clients. Since Indians have an affinity to gold, it is easier for IFAs to sell gold. Also, gold funds helped IFAs get a higher wallet share from clients and provided a balance to the portfolio,” says Sunil Subramaniam, CEO, Sundaram Mutual Fund.
Besides equity and gold fund categories, IFAs also command a respectable market share in debt. IFAs manage 37% of debt assets. Banks are the major players in debt funds, commanding a 54% slice of the debt assets pie.
The 2008 market crash was a major trigger for IFAs to shift focus to debt funds, say market observers.
“Post the 2008 crisis, there was a major shift towards accrual funds. IFAs started selling debt in order to protect investors from the volatility. Also, MIP as a category emerged big,” observes Sunil.
“IFAs started looking at debt funds post the 2008 crisis. A major chunk of money has gone in accrual funds. Accrual funds were delivering double digit returns after RBI started cutting rates in later half of 2008. Banks were cautious to lend to corporates and they started borrowing from mutual funds. This is when corporate bond funds emerged,” says Pallav Agarwal, a Delhi based advisor.
Besides, Pallav says that AMCs started providing training to IFAs on debt which helped them sell fixed income funds. “A lot of IFAs started understanding debt and moved client money from FDs to debt funds. Also, before the 2014 Budget, debt funds were very tax efficient as compared to FDs,” observes Pallav.
Post the changes in tax structure of debt funds, IFAs say that the focus has now shifted to arbitrage and balanced funds.
