Drawing from the successful use of banking network as a distribution channel by insurers, market regulator SEBI has pitched for PSU banks playing a greater role in the sale of mutual fund products.
Apart from traditional banking products, PSU banks have been very successful in distributing third party insurance products. However, the same success is not reflected in the case of mutual funds (MFs).
In order to increase penetration of mutual fund products and to energise the distribution network, the Securities and Exchange Board of India has suggested that all PSU banks be encouraged to distribute schemes of all MFs.
“PSU banks which have wide bank branches network and best distribution reach in the nook and corner of the country, could play a key role in mutual fund distribution,” SEBI said in its proposals.
PSU banks would need active support from Asset Management Companies (AMCs) to enable the distribution of mutual fund products as it was supported by insurance firms, it added.
As part of its long-term policy for mutual funds, SEBI has sought to make them much more appealing as a long-term investment product by proposing tax and other benefits to boost the sector.
These proposals are approved by SEBI’s board and they would soon be notified.
Recently, a SEBI-conducted study had also noted that banking channels are currently being underutilised for mutual fund distribution and suggested that AMCs should focus on their bank distribution networks and build robust information systems in a bid to take advantage of upcoming opportunities from new banking licences.
Financial inclusion is set to receive a big push as the Reserve Bank of India is scheduled to roll out new banking licences by current fiscal.
Nearly 45 fund houses together manage assets worth over Rs 9 lakh crore in India, but fund mobilisation has been a tough task for them in the past few years. One of the biggest reasons behind this low fund mobilisation is the lack of healthy participation from a large part of the country.
The study said that mutual fund presence in the country is heavily skewed in favour of the top 60 districts of India.
Out of 60 districts, a lion’s share of the mutual fund presence originates from Mumbai as the city houses the headquarters of most of the large companies, thereby getting a bulk of investments through the non-retail or institutional routes.