'Investors turned away from funds at one of the best times for equities' ; Ashu Suyash, MD and Country Head of Fidelity Mutual Fund, tells Babar Zaidi how the removal of entry loads on mutual funds last year has affected small investors.

It has been a year since entry loads were banned by SEBI. Do youthink it has helped the small investor?

We believe entry loads on mutual funds were abolished to benefi tinvestors. Over the past year, we have seen most investors turningaway from mutual funds and losing out on wealth creationopportunities offered by, perhaps, one of the best periods in thehistory of the Indian equity markets. This is because theintermediaries do not have an adequate incentive to recommend mutualfunds.

With the abolition of entry loads, intermediaries are expected tocharge investors for their services, but are unable to do so in theabsence of a pricing framework. It is, therefore, natural for themto take the easier path of recommending products such as unit-linked plans, structured products and fi xed deposits, which are notsubject to such regulation. This is where the outcome of the movediverges from its intention.

How can AMCs resolve the problems of distribution and reachingcustomers in small towns?

The past year has been a defi ning period for the mutual fundindustry and a lot will depend on how we deal with the distributors'disinterest. We will continue to focus on our distributor network.Independent fi nancial advisers and bank branches offer access ineach neighbourhood and are key channels. Simultaneously, we willleverage new channels, such as stock exchanges and online platforms.PSU banks remain under-utilised and I see potential in using theinsurance industry as a channel.

Mutual funds are the simplest, cheapest market-linked products.Despite this, ULIPs had registered better sales than mutual fundseven before the no-load regime. Why?

The playing fi eld has been uneven for mutual funds and ULIPs.This was so before the zero entry load regime and is worse now. Ifyou remove the pricing anomalies and allow the two to be sold onindividual merit as investment options, the question would bedifferent. ULIPS' liberal pricing regime has allowed them to bemarketed aggressively compared with mutual funds, which have hadcaps on loads and expense ratios for several years. ULIPS also havethe insurance aspect, which has an emotional appeal for mostconsumers. This is why customers continue to pay premiums for ULIPSand discontinue SIPs in mutual funds in adverse market conditions.There is scope for insurance and fund houses to work together andcreate quality products. A framework supporting such partnershipscould go a long way in the growth of both industries. It is notabout one industry growing at the cost of the other.

Nearly 22 per cent of investors in equity funds exit within ayear of investing. Is there a fundamental flaw in the way the Indianinvestor looks at mutual fund investments?

Unfortunately, investing in equity mutual funds is still viewedas an option to make quick gains and investors try to time theirentries and exits with a view to maximising gains. Many are unnervedby a downturn or volatility in the equity markets. We havereiterated that time spent, not timing, is the key to success inequity investing. The only way to change investor behaviour isthrough sustained initiatives in educating them, complemented bydistributor advice and hand holding during volatility.

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