Sep 13, 1999|
Wake-up call for public MFs
Public sector mutual funds (MF) have taken some aggressive steps to market themselves, in order to protect their territory from their savvier private sector counterparts. This was revealed by news reports in the Economic Times.
Public sector MFs can be divided into three categories – Unit Trust of India (UTI), banks-sponsored MFs (SBI MF, Canbank MF) and financial institution-sponsored MFs (IDBI MF, ICICI MF).
Over the past two years, MFs in the public sector have seen their market shares eroded by private sector competitors. This is despite the fact that public sector MFs (except UTI) broke into the MF sector as early as 1987. But over the years, lack of competition made them complacent. Their schemes lacked basic features such as regular disclosure of NAVs and portfolios, which today have become the norm rather than the exception. Even now, some public sector MFs like IDBI MF and GIC MF disclose their portfolios annually. Compare this to some private sector MFs like Kothari Pioneer MF and ITC Threadneedle MF, that disclose their portfolios monthly and it is not difficult to see why investors have a guarded view of public sector MFs.
Portfolio disclosures apart, private sector MFs have greater interaction with the investors, both current as well as potential. Among other things, they have set up web sites that give the visitors current information about their schemes, allow them to download offer documents and application forms, pose queries to the fund managers, etc. All in all, there is an attempt on the part of the private sector MFs to eliminate all barriers to information.
Steps initiated by public sector MFs to boost inflows include innovative schemes, tie-ups with third-party distributors, arrangements that leverage the parent's distribution networks and even introduction of performance-linked pay.
Whereas these measures are commendable in their own way, the moot point is, are they sufficient? At the end of the day, will the investor be interested in the third-party distribution agreement and tie-ups or is he going to be concerned about the returns on his MF investment? The fact is private sector MFs with much smaller distribution networks have garnered higher inflows, largely on their performances. Over the past few months, private sector MFs have performed better than public sector MFs, because they had lower investments in PSUs and increased investments in companies in software, fast-moving consumer goods (FMCG) and pharma sectors, as the returns in these companies was higher. Their portfolios were disclosed frequently enough for investors to understand that, returns in private sector MFs were going to be higher compared to the public sector MFs.
Compare this to public sector MFs, who had large investments in PSUs, and increased their exposure to software, FMCG and pharma companies much later. Moreover, their portfolios weren't disclosed often enough to the investors, who learnt about it only later.
So in addition to the steps that public sector MFs have initiated, they must enhance the quality of their portfolio and should try to be more transparent, as far as dissemination of information is concerned. This will create a perception of sincerity in the minds of investors, and then maybe they can recoup some of their market share.
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