Tier-I cities are themselves so untapped

Clearly, when the Tier-I cities are themselves so untapped, why would MF houses invest in tapping the unexplored terrains (aka rural markets and Tier 2 towns and cities)?” To that effect, the insurance sector has done much better in tapping the rural riches and the sotermed uncharted territories, reasons enough to explain why its retail clientele is much higher than that of the mutual fund industry, despite the fact that it offers lower returns as compared to mutual fund. On another front, the step-motherly treatment of the government towards the MF industry in terms of regulation and taxation has also played its fair part in keeping certain retail investors at bay. For example, as a regulatory compliance, quoting PAN is imperative while investing in MFs [relatively, one doesn’t need to provide such documentation while initiating insurance policies]. The recent call by SEBI for a review of the twenty year old threetier structure of mutual fund houses (pyramid structure – sponsor, trustee body and AMC), will perhaps help rope in more retail investors and increase their investments. But till the time SEBI provides stricter regulatory guidelines forcing the MF lobby to reserve high-end quotas for retail investors, the retail participation in the MF industry would remain to the liking of the funds – that is, pathetically small.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist)