With the aim of bringing about transparency and evoking trust among investors to increase the penetration of the capital market, Securities and Exchange Board of India (Sebi) has asked mutual fund companies to come out with simple and less risky products to enhance retail participation.
"Penetration of the capital market is just 1% and the biggest challenge today is to create awareness among investors," said executive director, Sebi, KN Vaidyanathan, who was in Chandigarh on Saturday to deliver a talk on 'Mutual Funds: Opportunities and Challenges'.
Talking about the measures undertaken by Sebi to bring about transparency and make markets more 'investor-centric', Vaidyanathan said, "We are trying to persuade mutual fund companies to launch easy, cheaper and less risky products to transact… to involve more people in the segment. We have told companies to consolidate existing products rather than launch new ones."
The total assets size of the mutual fund sector in the country is pegged at Rs 6,26,000 crore, constituting 40% of retail investments, while the rest is with institutions and large investors.
Noting that there was enough headroom for the mutual fund segment to grow, Vaidyanathan said creating investor awareness about the sector was the biggest challenge before Sebi.
"Not many people trust the mutual fund segment," he said.
He said the banking sector got 55 to 60% of the total savings in the country, while 30-35% was attracted by the insurance industry.
"Mutual funds get only 10-15% of the savings," he said, adding that about Rs 3-4 lakh crore was annually pumped into banking, Rs 1.5 lakh crore in insurance (excluding ULIP) and just Rs 25,000 crore into the mutual fund sector.
On steps taken by Sebi to make mutual fund an investor-centric industry, Vaidyanathan said the abolition of entry load on MF products had yielded Rs 2,500 crore to investors in 20 months.
"This is possibly the biggest benefit investors have got," he said.
Sebi abolished entry load on MF products varied between 2-5% in August 2009, much to the discomfort of distributors.
Asked whether Sebi was framing guidelines for regulating the wealth management business after the Rs 450-crore Gurgaon Citibank fraud, he said, "Work is in progress."
However, he refused to specify a timeframe in this regard.