The mutual fund industry has a deep structural flaw. The participation of institutions and corporates as investors in the fund is a disaster. They are quick movers and are disruptors of the entire investor community in mutual funds.
A retail investor, typically stays invested for long. If a fund were to be packed with retail investors ONLY, it would typically keep growing in size as more and more individuals pour their savings in to mutual funds.
Letting corporate investors in has also led to a lot of ‘investment’ banking activities in the Mutual Fund. They have become pass-through vehicles for inter-corporate loans, by-passing ‘related party’ transactions, promoter funding, builder funding etc.
I would urge SEBI to ensure that Retail and non-retail are segregated. There is no way the companies can be kept out given their lobbying power. However, the retail can be ring fenced. Make sure that there is no inter scheme nonsense between retail and non-retail.
In debt funds, the non-retail can smell trouble. They will be first in the redemption queue. To meet this, the fund will sell the most liquid and the one that fetches the value as per book. So what will be left would be less liquid assets and assets that will not fetch the ‘book’ value. The non-retail benefits at the EXPENSE of the retail.
The distributors and IFAs should put pressure on the MFs to start this immediately. SEBI can do this at a day’s notice. MAKE SURE THAT ASSETS ARE SEPARATE AND NOT CO-MINGLED.
It is not too late. DO IT NOW.
Non-retail money is HOT money. Keep them in a separate basket. Give respect to the retail investor who is the sticky customer
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