FUND FULCRUM (contd.)

October 2016

Investors pumped in over Rs 16,000 crore into various mutual fund schemes in September 2016, with liquid or money market segment contributing the most to the inflow. With this, the total net inflow in mutual fund schemes has reached Rs 2.34 lakh crore in the April-September period of the current fiscal. In comparison, mutual funds had witnessed an inflow of Rs 80,895 crore in the same period a year ago. According to the data from the Association of Mutual Funds in India (AMFI), investors have poured in a net Rs 16,071 crore in mutual fund schemes in September 2016 compared to Rs 25,332 crore in August 2016. Prior to that, mutual fund schemes had witnessed an inflow of Rs 1.03 lakh crore. The latest inflow has been mainly driven by contribution from liquid or money market segment. Besides, equity schemes continued to witness positive inflow. Liquid or money market segment witnessed Rs 19,630 crore being poured in September 2016, while equity and equity-linked schemes saw net inflows of Rs 3,743 crore. In addition, balanced funds saw net inflow of Rs 3,275 crore. However, income funds or debt schemes saw an outflow of over Rs 11,000 crore. Overall, the asset base of the country's fund houses increased to Rs 15.80 lakh crore in September 2016 from Rs 15.63 lakh crore in August 2016.

Regulatory Rigmarole

From October 1, 2016 AMCs are to disclose the absolute commission paid to distributors in half-yearly common account statements. This figure will also include all direct monetary payments and other payments made in the form of gifts/rewards, trips, event sponsorships by AMCs to distributors. There is some relief for distributors as SEBI has asked AMCs to mention in the footnote that this figure does not exclude costs incurred by distributors such as service tax, operating costs, etc.

In order to ease the RIA registration process, applicants can now apply online on SEBI website. In addition, the market regulator has done away with the submission of physical application forms. In a circular issued by the market regulator, SEBI said, “Applicants seeking grant of registration as Investment Advisers and Research Analysts are now required to submit only online application to SEBI at https://siportal.sebi.gov.in. The user manual available in the portal has instructions on how to submit the applications.”Until now, applicants seeking RIA registration were required to submit their application forms either through post or by visiting SEBI office. Since many advisers are not comfortable sending their personal details through post, they prefer to visit the SEBI office and get acknowledgement of receipt of their application forms. The online application procedure is expected to save time and effort of the applicants. Meanwhile, the regulator has allowed the existing RIAs to file their compliance report online through the online portal. SEBI said that emails have already been sent to all the RIAs to activate their online accounts.This may help RIAs consolidate all reports at one place. Typically, SEBI sends email or calls RIAs to get such reports. RIAs can now directly upload their compliance reports on this portal.

BSE has said that SEBI Registered Investment Advisors can start transacting through BSE StAR MF from November 4, 2016. “BSE is pleased to offer BSE StAR MF platform to SEBI Registered Investment Advisors (RIAs) to purchase and redeem mutual fund units on behalf of their clients with effect from November 4, 2016,” states the circular issued on October 24, 2016.The guidelines for registration and operations will be issued shortly. BSE Star MFD will continue to be a B2B platform and direct plans will not be allowed on this platform. BSE will come out with a platform for RIAs called BSE Star MF RIA in which it will only offer direct plans.SEBI has recently allowed RIAs to initiate transactions on stock exchange platforms for their clients.  “In order to broad base the reach of this platform, it has been decided to allow SEBI Registered   Investment   Advisors (RIAs) to   use   infrastructure   of   the   recognized stock exchanges to purchase and redeem mutual fund units directly from mutual funds on behalf of their clients, including direct plans,” stated the circular.So far, only MF distributors, stock brokers and clearing members were allowed to transact through stock exchange platforms.

SEBI has come out with a consultation paper which proposes a host of amendments to SEBI (Investment Advisers) Regulations 2013.

Here are the key proposals of the consultation paper:

On exemption provided to mutual fund distributors

·         SEBI proposes to do away with the exemption given to mutual fund advisers in which they are allowed to charge a fee for mutual fund advisory services apart from commission income.

·         No one can use nomenclature like ‘independent financial advisers’ (IFAs) and ‘wealth managers’ without registering with SEBI as RIA.

·         Individuals who opt to continue with the current model of commission can use the nomenclature ‘mutual fund distributor’. Such mutual fund distributor cannot recommend any product or give any advice; they can describe product specification

·         The silver lining is that distributors who opt for RIAs can continue to get trail commissions on existing AUM. However, they have to disclose this to their clients.

·         RIAs cannot accept fee in cash - only cheque, draft, NEFT, RTGS, IMPS, etc.

·         RIAs registered under individual category cannot provide execution services

·         Client or adviser can terminate business relationship by serving a one-month notice. However, if a client is not satisfied with the services, they can end it at any point of time subject to refund of the proportionate advisory fee.

On exemptions given to other professionals

·         The market regulator has proposed to put professionals like stock brokers, portfolio managers, chartered accountants and company secretaries under the purview of Investment Adviser regulations. That means, these professionals will also have to get themselves registered with SEBI to give even an investment advice incidental to their profession.

·         Exemption will be given to merchant bankers, agents (only for insurance advice) and retirement advisers (only for retirement advice) subject to advice related to the products regulated by their respective regulations.

Advice through subsidiary

·         RBI has proposed that banks and NBFCs will have to float a separate department or divisions to provide advisory services. Such entities may now have to float a separate subsidiary to provide investment advice.

·         Banks or other such firms cannot force their customers to avail execution services from them.

Other key proposals

·         Persons providing investment advice through any broadcasting or telecommunication media will have to comply with RIA regulations.

·         No one can provide trading tips via WhasApp, SMS, WeChat, Twitter, Facebook etc. unless such persons obtain RIA license.

·         Carrying out risk profiling of corporate and institutional investors is not mandatory unless it is related to complex products like derivatives, structured products etc.

·         CFAs, CFPs, CWMs, Wealth Management Certification (Advance Level) by CIEL and International Certificate in Wealth & Investment Management by Charted Institute for Securities and Investment have been proposed to be exempted to appear  for NISM exam to obtain RIA license.

SEBI has given a time frame of three years to comply with the guidelines once it gets finalized.

Over half of SIP accounts have been active for more than five years, shows a note sent to fund houses by AMFI.Of the 1.09 crore SIP accounts as on August 2016, nearly 56 lakh or 52% SIPs are active for more than five years. This can be attributed to increased awareness about mutual funds and good fund performance. Increased awareness about the benefits of long term investments in equity funds through SIPs has helped industry achieve this milestone. Superior fund performance has also encouraged investors to stay put. In terms of monthly inflows, the total amount collected through SIPs has increased to Rs. 3,500 crore (Rs.333 crore under direct plans and Rs. 3,164 under regular plan) as on August 2016. In July 2016, the industry got gross monthly inflows of 3,350 crore from SIPs.Interestingly, the total AUM of SIP stood at Rs. 1.25 lakh crore as in August, which is around 8% of the overall AUM of the mutual fund industry.While the industry has added 5.74 lakh new SIP accounts in August, 3.29 lakh accounts were discontinued or matured during the same period. Overall, the industry has witnessed net addition of 2.45 lakh SIPs in August.Currently, the industry has over 1 crore SIPs in regular plans and 8.50 lakh SIPs in direct plans. The AUM of SIPs collected under regular plan is Rs.1.20 lakh crore whereas the AUM of SIPs collected through direct plans stood at Rs. 8,000 crore.