A couple of decades back, not many people realized the value of a Mutual Fund or the way its transactions are to be dealt. They thought of Mutual Funds to be instruments that can help them gain a lot of profit over their investment plus cost. But, when a wave of disaster hit them, it changed their perspective completely.
During the “1992 blockbuster”, people invested a lot of their funds with the hope of making huge profits. Little did they realize that if this bubble bursted, it could end lead them into debts- loan, personal loan, home loan etc., debts that can create upheaval in their financial statements and also create an impact for most part of their lives. With this bubble expanding, many people wanted to make big money; intelligent investors sold their units at a profit. The ones who did not take its advantage faced problems. But the asset management company UTI was the director of this scene. After a couple of years UTI suffered with problems like bad delivery, losses and more.
Since then, there used to be a love-hate kind of a relationship between investors and equity MFs; it carried along the investor’s expectation, a chance to make big money and later face disappointment due to a fall in their units. It took almost over 25 years for investors to understand how to make a proper use of an MF and understand it is a long term investment asset and not a short term market transaction tool.
Thanks to the increased and widespread awareness created by the RTI, a lot of valuable information began to be disseminated to the shareholders of the company, primarily with RBIs initiatives, and for the benefit of transparency by the company. The investors are now benefitted with an advantage; SIP route to invest in Mutual Funds.
Systematic Investment Route has proven to be a game changer in the Mutual Fund arena. This is evident from the rise in the equity mutual funds, by various asset management companies, to over 45% over the past 15 months for the year amounting to 17.7 lakh in 2010-11 from 5.2 lakh what it was in 2009-10. Most fund houses and asset managers believe that SIPs will be the game changer in the coming years. But what is now being seen as a deficiency is the inability of fund houses to attract a major portion of population into investing in mutual funds.
There are various reasons for this. But the main reason is the fact that with the slashing of entry loads, wherein they had the ability to earn 2.25% on the total value of the investment, not many fund houses see the benefits of catering to low income groups, since the get a very low commission. Earning a commission rate as less as 0.75-1%, many fund managers opt for marketing insurance-based tax-saving unit-linked insurance plans (Ulips), retail bonds and other exotic investment products where they are in a position to churn the investor for their income. Therefore, a lot needs to be done for improving the distribution system in India for strengthening Mutual funds.
With the increase in technology that helps in widespread awareness of the advantages of holding a mutual fund, it increase its incentives to the fund managers so that they feel motivated to cater to the low income groups, are some of the immediate changes that are required. Buy, sell or manage their fund portfolios – will pave the way ahead for MFs. With such an approach, there will be chances of introducing products like quant funds and advanced index funds to benefit the investor first and then the fund house.