Notion 1 : IFA assets are stickier and long term, banks have much shorter tenure

Reality 1 : Stickiness of assets is more a function of investor size and not distributor type.

There is not much of a difference between IFAs, banks, NDs and RDs in terms of duration of equity fund assets - as seen from the chart below (Exhibit 2b). The difference is stark when one looks at it from the perspective of type of investor - not type of distributor. Retail investors assets are certainly far stickier and longer term than HNI investors assets.

The authors of the report estimate that ageing of assets in the less than Rs. 1 lakh segment (retail) is about 33 months and in contrast, its around 20 months in the HNI segment (above Rs. 1 crore).

Notion 2 : Retail investors always get their hands burnt by investing at market peaks and panic-selling in subsequent corrections.

Reality 2 : 72% of all redemptions made between Apr 2008 and Mar 2010 were at a profit.

In fact, retail investors (below Rs. 5 lakhs) as a sub-segment seem to have done even better : 80% of redemptions were at a profit. In the HNI segment, (over Rs. 5 lakhs), 63% of redemptions were at a profit.

The story is however a little different if one looks at redemptions from NFOs. Around 50% of redemptions from NFOs were below par and a further 22% were at NAVs less than Rs. 11 - a 10% gain. Investors who redeemed out of NFOs were clearly not a happy lot - unlike those who redeemed out of ongoing schemes.

As the authors of this report say, there is clearly a great story here of investors making money in mutual funds - which must be effectively converted into marketing communication to daw in the more sceptical investors - nothing succeeds like success - and there is no better advertisement than satisfied investors who have made money. The industry can justifiably boast of 80% of retail investors taking home profits even in the most volatile period (Apr 08 - Mar 10). This fact must be leveraged effectively by AMCs, distributors and advisors.

Notion 3 : Banks and NDs are squeezing out IFAs and will soon dominate the distribution landscape

Reality 3 : In the last 6 years, banks and NDs have lost market share. The only segment that has been gaining market share on a year-on-year basis is the IFA segment.

If we dig deeper, the facts are even more interesting. Large IFAs (defined as IFAs who have CAMS equity assets of more than 1 crore) have gained share very rapidly - from 10% to 23% over the last 6 years. Small and medium sized IFAs have lost share.

It is abundantly clear that serious and committed advisors have been winning market share at a rapid pace over the last 6 years - and we see no reason for any change in this trend. Small and marginal IFAs - who have perhaps never been very committed to this business - are exiting this business - which is unfortunate, but perhaps inevitable. But the message for committed IFAs is crystal clear - it is their segment that is winning the market share game - and not the banks and NDs as was the popular notion. There is no need to fear competition - as long as you continue to put your clients interest first, always.

Notion 4 : In early 2010, when AuM transfers were rampant, banks and NDs grossly misused this facility to squeeze out IFAs

Reality 4 : Banks and NDs at a category level lost as much as they gained. RDs gained significantly, at the expense of small IFAs. Large IFAs were largely unaffected.

There was indeed a very sharp jump in transfer requests - which is what prompted AMFI to come up with its rather controversial decision to deny trail altogether to both ARN holders on transferred assets.

A look at who gained and who lost in this AuM transfer mayhem that happened is quite revealing. Small IFAs (less than 1 crore in CAMS equity assets) saw the maximum activity - not just in AuM lost, but in AuM gained as well. As a category, they gained Rs. 417 crores - that's much more than any other category - and also lost the most - Rs. 500 crores. That's quite different from the picture we were told was happening - that large banks and NDs were "acquiring" assets of small IFAs - not always through fair means. The biggest churn happened - it seems - within the small IFA segment itself.

The biggest winner - at a net AuM level - was the regional distributor segment. Banks in fact lost a little more assets than they gained at an overall level. Same was the story in the large IFA segment.

Notion 5 : MF penetration in smaller towns remains a pipe-dream. MFs remain a metro-centric product

Reality 5 : AMCs and distributors have been making steady progress in increasing MF penetration in smaller towns - and the trend is very encouraging

Mumbai's overwhelming dominance is fading. The next 9 cities have more or less held their share over the last 7 years. The encouraging trends are in the cities ranked 11 to 30 and cities ranked 31 to 100 - which are rapidly becoming very meaningful participants in the equity funds industry.

But, while the direction is undoubtedly very encouraging, a sobering reminder about the work yet to be done by the industry can be seen from the next chart - which shows the share of smaller cities in other savings and investment products. Clearly the insurance industry has achieved significantly higher penetration levels. But the real one to take note of is retail stock broking. At the very least, the MF industry must aspire to match the penetration of retail stock broking. If investors in small towns can buy direct equities, why can't advisors and AMCs get them to buy equity funds? That's the immediate challenge for the MF industry.

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