Market volatility in the global and domestic markets has brought a change in the investment pattern of the retail investors. Now, they are favouring mutual fund schemes more than the initial public offerings (IPOs) or participating directly into the secondary market.
Apart from the market volatility the Securities and Exchange Board of India's (Sebi) decision to cut the cost of investing in mutual funds for the retail investors has also resulted in investors putting their money in mutual funds.
The growing popularity of the mutual fund schemes is evident with the success of the New Fund Offerings (NFOs) this year. According to market insiders, Reliance Mutual Fund has mobilised around Rs 5,660 crore through its recently concluded NFO, Reliance Natural Resources Fund.
Interestingly, during the same period Wockhardt Hospitals and Emaar MGF were forced to cancel their IPOs. These companies had plans to garner Rs 1,100 crore and Rs 5,000 crore respectively through their public issues.
Market experts said that retail investors were not to keen to take any risk by participating in the current volatile equity market.
Another fund house, Birla Sun Life Mutual Fund's Special Situation Fund NFO has mopped Rs 900 crore. The NFO of AIG Investments' Infrastructure and Economic Reform Fund and HDFC's Infrastructure Fund are also getting good response from the market.
Tata Mutual Fund has also come out with a Tata Growing Economies Infrastructure Fund. The NFO opened on February 18 and will close on March 18.
Ved Prakash Chaturvedi, managing director, Tata Asset Management Company said that the fund house plans to mop up more than Rs 2,000 crore through the new scheme from the market.
The major reason for the shift of the investors towards mutual fund schemes is the meltdown in the Sensex and the Nifty leading to the erosion of retail investors' wealth worth several crores. This is the reason that the Sebi has felt the need to reduce the cost of buying mutual fund schemes to make it an affordable vehicle of investment for the retail investors.
Sebi has taken several steps to cut the cost of investing in mutual fund schemes for the retail investors. Among others,
~ The regulator has decided early this year to waive off entry load for the direct applications including investment made through the internet on the open ended schemes. The new norms have been brought into the force from January 4, 2008.
~ According to the new regulations, the entry load will not be charged on the direct applications received by the Asset Management Company (AMC), submitted to AMC's collection centres and through the internet. However, the regulator has maintained that the applications routed through any distributor or agent or broker will continue to attract entry fee.
Experts say that the new norms will encourage investors to make investments through internet because they can save the entry fee ranging between 1-2.5 per cent in the open ended schemes.
However, a section of the market player are of the view that the waiving of entry load will help only a miniscule percentage of population because the majority still depended on distributor for choosing the scheme out of more than 760 schemes available in the market. The distributor, here, plays a dual role of a financial advisor as well as the seller of the schemes to the investors.
Hence, the new norms can offer fruits in real senses only when the investors break this hurdle to invest in mutual fund schemes. This can happen only if the investors through out the country are educated about the financial market. Both Sebi and mutual fund industry have taken certain initiative to educate investors which can be intensified further.
The success of NFOs and the withdrawal of IPOs like Wockhardt and Emaar MGF indicate that the mutual fund schemes are the favoured destination of the investors.
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