Individual mutual fund (MF) distributors are seeing an uptick in their ranks, with the recent market rally and partial lifting of lockdown improving sentiment.
In July, the number of new registered independent financial advisors (IFAs) stood at 330, which was over four times the tally seen in previous month.
“The combination of a sharp bounceback in the markets since March and the gradual opening up of the economy has helped sentiments. We are also seeing higher traction for MF products in recent months, especially among millennials and the middle-aged group,” said Ritesh Sheth, co-founder of Tejas Consultancy.
The number of renewals by existing IFAs also picked up. In July, the renewals stood at 1,514, which was 20 per cent higher than previous month.
The heightened volatility amid the outbreak of Coronavirus had led to high redemption pressures in the MF industry. In July, the MF industry saw negative equity flows for the first time in four years.
According to industry sources, the recent wind-up episode of Franklin Templeton MF, along with market volatility, had led to some players exiting the MF business.
Distributors say it’d be better to wait and watch, whether growth in new registrations is sustainable.
“While distributors have seen pick-up in underlying asset due to the market recovery, the broader issues pertaining to lower commissions still remain. The existing IFAs are still concerned over the declining commission payouts, especially from the larger-sized MFs,” said Srikanth Matrubai, chief executive officer at SriKavi Weatlh.
MF distributors have seen shrinking incomes with the gross amount paid by fund houses slipping to a three-year low of Rs 6,134 crore in 2019-2020 (FY20). The payouts were 22 per cent lower than previous year’s tally of Rs 7,938 crore.
The new registrations in July are still lower than average monthly registrations seen last financial year. In 2019-2020 (FY20), the average registrations stood at 716.
Industry participants say some of the insurance players are also entering MF distribution, to diversify their offerings. “Insurance advisors are also showing interest. Some existing MF players are getting spouses or children registered as IFAs, as part of succession planning in light of the Coronavirus outbreak,” Matrubai said.
Players say the growth potential remains high. “There remains a lot of room for growth, given the low penetration of MF assets in the country,” pointed out Rushabh Desai, Mumbai-based MF distributor.
The current MF asset-to-GDP ratio in India stands at 11 per cent, which is significantly lower than some of the other developing countries and several developed countries.