SEBI Chairman Ajay Tyagi has raised concern over concentration of assets in mutual fund industry among the top fund houses and the need for more competition to bring down the cost for investors.
Speaking at the annual Association of Mutual Fund Industries in India summit on Thursday, Tyagi said the top four mutual funds account for 50 per cent of the industry’s asset under management and the top seven fund houses control 70 per cent of the industry assets.
The top seven fund houses generate 60 per cent of the mutual fund industry’s revenue and 40-50 per cent of the industry’s profit before tax.
Tyagi also flagged the issue of high total expense ratio (TER) charged on investors.
TER is a percentage of a scheme’s corpus that a mutual fund house charges towards expenses, including administrative and management expenses.
The TER has remained stagnant since late the ’90s when the AUM was at ₹50,000 crore. However, the AUM has now burgeoned to ₹23 lakh crore. The industry needs to correct this anomaly even while SEBI is working on a policy in this regard, he said.
The real challenge for mutual funds today, he said, is to look for good investible stocks, as more money is chasing few stocks which is one of the reasons for the high PE ratio.
Debt funds
Tyagi advised the AMFI to promote the direct option which comes with a lower cost structure. There is no distributor commission in the direct option as the investor decides on the scheme and buys it directly without the help of distributors.
SEBI is also planning to roll out new regulations for close-ended schemes soon, he said. As a word of caution to debt mutual fund managers, Tyagi said most of the funds are invested in low-rated, high-risk papers to generate maximum returns. There is nothing wrong in it, but they need to be vigilant and appropriately value their investments even though a bulk of the money comes from well-informed institutional investors, he said. A self-regulatory organisation for the mutual fund distribution community is the need of the hour and SEBI is working on it, he said.
On allowing mutual funds to invest in commodity markets, Tyagi said though their investment will provide liquidity, there is an issue of physical delivery that needs to be dealt with by the mutual funds.
F&O in petrol, diesel
On the launch of petrol and diesel futures contracts, Tyagi said it is very difficult to have these contracts because of regulatory issues.
Only a few marketing companies can sell petroleum products. It is not a monopoly but is an oligopoly. Again, prices are not driven by free market forces and it includes a huge component of taxes at the retail level. It is not a product to be considered when the market is at a nascent stage, he said.