Load ban hasn’t affected inflows into MFs: Morgan Stanley

MUMBAI: MNC bank Morgan Stanley has debunked mutual fund industry’s pet theory that entry load ban and the resultant lull in new fund offerings have impacted its profitability. The MF industry has become more stable post-entry load ban, according to a Morgan Stanley report said. “The fund industry is gaining more stability since the Sebi ban on entry load on NFOs. This is obvious from the falling turnover in domestic MF flows,” the report said.

The report debates that counting out NFO subscription, net inflows into equity funds have been negative in 2004-08 — an opinion that was also voiced by former Sebi chief CB Bhave. “People like to combine the ban with inflows into the fund industry. This is just to confuse , as the ban on entry load has nothing to do with outflows ,” Bhave had said, brushing aside criticism that the ban has affected inflows into the industry .

According to Bhave, whose tenure as Sebi chairman ended last Friday, the public perception about distributors not selling MFs was not true. “The numbers tell us a slightly different story. Subscription figures have increased in existing equity schemes in 2010 than in 2008-09 . Money has gone down only in new fund offers (NFOs),” Bhave said.

The Morgan Stanley report says that the Sebi entry load ban has not affected the relative position of the industry in the equity market. The MFs’ AUM in market cap is intact, the report said. “Despite the entry loan ban in 2010, gross inflows in equity funds touched a 3-year high. Over the past three months, equity MFs have seen the highest cumulative inflows since August 2009. This is distinctly surprising in the context of market volatility,” the report said.

Though money has been trickling into equity MFs, NFOs failed to attract investment in 2010. Equity MFs — through 24 NFOs — collected just about Rs 3,000 crore in 2010, down by over 57% from 2009 and lowest in four years. Year 2007 saw 64 equity NFOs collecting Rs 39,327 crore; 48 equity offers in 2008 and 33 NFOs in 2009 collected Rs 12,722 crore and Rs 7,284 crore, respectively, as per AMFI data.