Hit hard by the mass exodus of investors, amounting to an average of over

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1 lakh a month, the mutual fund houses are knocking on the doors of Sebi, which in turn, is mulling over possible remedial actions including an expanded distribution model for these investment products.

Over 4 lakh investors are estimated to have closed their mutual fund accounts, as determined by the change in the number of MF folios in the past three months, largely driven by redemption in equity-focused MF schemes. At the same time, the debt market-focused schemes saw a rise in the number of folios (investor accounts) during the period, but such schemes account for under 10 per cent of total number of MF accounts.

According to information available with the Association of Mutual Funds in India (AMFI), the total number of MF folios stood at 4.79 crore at the end of May 2010-- comprising 4.07 crore in equity-focused schemes.

This marks a significant decline from 4.83 crore total folios, including 4.13 crore folios of equity-focused schemes, at the end of February 2010.

While the total number of folios have declined by over 4 lakh during these three months, those of equity-focused schemes have actually declined by about 6 lakh. The non-equity focused schemes actually saw an increase of about 2 lakh folios during this period, but this was not enough to arrest the overall exodus of investors from the MF space.

This exodus has now continued for three consecutive months -- March, April and May -- and the fund houses are getting increasingly concerned about the same, particularly in the backdrop of market regulator Sebi scrapping the entry-load for MF schemes, a senior executive at a fund house told PTI.

While this step was taken late last year in the investors' interest, the distributors have become less interested in selling the MF schemes since then, while products like Ulips, which are life insurance products but invest heavily in stock and bond markets just like MFs, are being sold aggressively because of high commission payouts, the official noted.

The issue has already snowballed into a regulatory turf war between Sebi and insurance watchdog Irda, and an early resolution is necessary to boost investors sentiment, he said.

Even the market regulator Sebi is now looking out at various ways to increase investor participation in MFs, the official said, adding the regulator could look at roping in intermediaries like banks for expanding the reach for investors on the lines of stock exchanges and brokers that have started selling MFs online on their terminals.