“Business is migrating from MFs to insurers”

U K Sinha, chairman and managing director of the UTI Asset Management Company spoke to Hindustan Times about the challenges being faced by the industry. Excerpts.

Trapped between the regulator’s rein and peculiar competition from the insurance sector for managing savings, the mutual fund industry is finding it hard to move ahead as it is losing on equity investments. U K Sinha, chairman and managing director of the UTI Asset Management Company spoke to Hindustan Times about the challenges being faced by the industry. Excerpts.

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The mutual fund industry has gone through an important regulatory change after the introduction of the no-entry load regime this year. How has the shift been?
The changes have happened too fast and too soon. A mutual fund distributor is subject to one set of rules while insurance distributors have to undergo a different set of regulations. Ideally, this should have not been a worry but what has happened is that a very large part (75 per cent 80 per cent) of the business of the insurance sector is into unit linked insurance product (ULIPs) and these are products that the mutual fund industry has been offering. We have the oldest ULIP and what happens is that there is no entry load and no commission to the distributor of ULIPs of UTI whereas you can pay as high as 30 per cent to 40 per cent for insurance distribution. That is where there is a problem.

How much has the mutual fund industry been impacted?
Business is migrating from mutual fund industry to the insurance industry. In the last four months between August and November the mutual fund industry has witnessed a net negative sale of almost Rs 5,000 crore in the equity segment. We have witnessed an outflow from the existing pool. This creates a serious difficulty for mutual fund players.

Even the RBI has raised an eye on the huge investments by banks into mutual funds. How will that affect you?
Lot of bank money is coming to mutual funds because of the tax advantage they get on the liquid products. I think if the regulator is concerned it can remove the tax advantage for investment in liquid products of mutual funds.

How do you plan to help yourself in these situations?
We are trying to increase our business by opening more branches and having more independent financial advisors (IFAs).