Small and mid-sized mutual funds are trimming their retail network across the country, owing to cut-throat competition and stringent regulations in this segment.
Sources said despite the improved market sentiment, several mid- and small-sized asset management companies (AMCs) such as Taurus Mutual Fund had shut branches in smaller towns due to the low business volume from retail investors. Taurus has scaled down retail operations through the last two months, reducing employee count from 120 to about 100 and shutting retail branches in towns such as Ludhiana, Dehradun, Varanasi, Jodhpur and Amritsar. "It (retail) was becoming an unviable business, as money was not coming into equities. The expenditure on the retail front is high," said Waqar Naqvi, chief executive officer of Taurus Mutual Fund. He added many AMC centres were over-staffed.
Sources said though Daiwa Asset Management hadn't shut branches so far, its officials didn't rule out the possibility of doing so, as they were finding it difficult to continue operations.
Mutual fund industry officials said the demand for products of large mutual funds, which had deep pockets, had made it difficult for smaller mutual funds to survive. In most cases, large mutual funds, with superior fund management and marketing skills, have an edge. Promoters' unrealistic expectations on returns from business added to the woes.
At a time when only a quarter of the 44 fund houses were making profits, industry officials said assets were stagnant and retail folios were fast declining; they didn't expect to break even in the foreseeable future. "Regulatory changes, too, have been favourable for bigger, well-established fund houses. But for new players like us it is increasingly becoming difficult and promoters are not interested in investing much," said the chief executive of a struggling fund house.
Executives are unsure of the prospects of small mutual funds. "To bring retail investors back, a strong and sustainable rally is the need of the hour," said the chief marketing officer of a large-sized business.
"But that may not happen in the coming year," Naqvi said.
At every stock market high, investors stuck for a while are quickly booking profits and pulling money out of mutual funds. Through the last year, about three million equity folios have been closed. Sales in the equity segment continue to be less than half the sales in the 2005-2007 period.