Mumbai: A regulatory compliance that came into effect this month might strangle mutual funds’ retail push in India but help streamline the industry in the long run, industry players and experts said.
India’s market regulator made quoting Personal Account Number (PAN), the national identification for taxpayers, compulsory for mutual funds investors from July 2 and asset managers have already reported significant drop in transactions.
The industry has been trying to broaden its base by reaching out to smaller cities and investors through initiatives such as micro systematic investment plans (SIP).
“My maid, my driver don’t have PAN. They also have SIP,” Vikrant Gugnani, president of Reliance Capital Asset Management Ltd. said.
“From second of July, my inflows are down by 60-70%,” said Gugnani, whose fund house in April lowered the minimum monthly and quarterly investment limits through SIP to Rs 100 and 500 respectively, to reach out to very small investors.
Mutual funds may even lose some customers to insurance and post office investment schemes, which are open to those without PAN, Rajan Krishnan, business head of Principal Pnb Asset Management Co. said.
“It might be difficult to even convince somebody that he needs to get a PAN,” Krishnan said, referring to very small investors. “We may lose some customers forever.”
A little more than 3% of Indians pay income tax, and the government has been trying to widen the tax net and track flow of money through the PAN, which was started in mid nineties.
But not all are as fearful. Ashvin Arora, director of OptiMix division of ING Investment Management, said while the inflows had been impacted, it would be business as usual very soon.
Quoting data from Computer Age Management Services Pvt. Ltd., he said when the PAN was introduced, mutual fund transactions came down by 70% but were now back to up to 60% of the original levels.
It will drain out the black or accounted money, from the industry and help fund houses have better understanding of their customers and their needs, said Aditya Agarwal, joint managing director at fund tracking firm ICRA Online Ltd.
“It will bring a lot of ease for fund houses,” Agarwal said. “In the short term it’s a loss to the industry. In the long term, it’s a good move.”