Mutual Fund Sahi Hai Kya?

It has almost been two years since one of the most successful campaigns of all time started “Mutual Fund Sahi Hai”. The type of inroads that mutual fund has made is almost like a dream run, the biggest beneficiary being Systematic Investment plans or more popularly known as SIPs that are almost touching 8000 crores of incremental money per month.

Mutual fund flows have been one of the biggest reason why the Indian Stock markets survived any meaningful fall despite having global headwinds like increasing interest rates by fed, US-China trade deadlock etc.

Excited by the prospects and potential of mutual funds, the government decided to bring back the long term capital gain tax during the last year’s budget. Since then, it has been a roller coaster ride for the MF industry. Even the biggest disservice has been done by the regulator SEBI in the name of expense reduction. The governing body has almost left the retail clients orphan where no advisor is willing to serve them and are now becoming pray in the hands of online players like PayTM money etc.

Let’s see the chronology of events that have happened and their respective impacts:

1. Long term capital gain tax: Bringing back long term capital gain tax at the time when equity had just started to gain wallet share was a bad move. It has hardly provided any tax to the government but was seriously a big negative for the sentiments.
2. Reclassification of Schemes: By deciding not only true to label but market cap for various categories, the regulator really has made MF quite inflexible giving way to PMS/AIF.
3. Reduction in expenses and banning the upfront: IFA’s have always been the backbone of Mutual Funds in India and especially this leg of SIP has much to do with their efforts but the reduction in expenses and banning of upfront has forced the IFA’s to move into insurance where no such hurdles come in thier way.
4. IL&FS and now delay/default by Kotak FMPs: It has come at one of the worst time when the industry is already struggling because of the above-mentioned issues. With IL&FS default and delay in payments of maturity by Kotak AMC in FMP, it has almost set in panic amongst the investors and advisors.

There is not even an iota of doubt in my mind that Mutual Fund will grow over the longer term but a big disruption has already at the door which will change the way this industry was being run since last six decades.

In the series of articles to follow, I will explain how badly the manpower which includes employees and agents will take a hit.