It is almost two years since the Securities and Exchange Board of India or Sebi has banned entry load (upfront commission paid to mutual fund distributors) on mutual fund investments. Needless to say, this has resulted in a lot of smalltime mutual fund advisors (independent financial advisors in the industry parlance) shutting shops.
According to mutual fund players, IFAs, especially those based in far flung suburbs of metros and smaller cities and entirely dependent on mutual fund commissions, have vanished from the scene overnight.
Some switched to selling insurance products, especially ULIPs, for their attractive commissions. In short, mutual funds are still missing the distribution arm that used to reach out to retail investors.
No wonder, that MF players were overjoyed when they heard that Sebi, under the stewardship of the new chief UK Sinha, is looking to incentivize distributors in some way. MF circles were hopeful that Sinha, previously head of UTI, fully comprehends the magnitude of the issue and would come out with a long term solution.
Sure, the Sebi chief has already made it clear that he is not looking to abolish the ban on the entry load. However, every small bit of news on the topic generates a lot interest among MF playes.
The fund managers refuse to discuss the topic anymore in public, as they want the Association of Mutual Funds of India or AMFI to be the sole voice speaking on the issue. AMFI chief excuses himself as he is also part of the committee which is looking into the issue.
"Clearly, the plan didn't work. The figures are there to see," says D Sundararajan, investment consultant , Trendy Investments . "There was a talk that mutual fund units are not sold and they are bought.
But it has been proven that it is clearly not the case. There was already a route to buy units directly and it wasn't working. With the incentives gone, distributors are not ready to push the units and the sales figure reflects that," says Sundararajan , who says he is an interested party as he also distributes mutual funds.
"The IFA contribution has come down to 26% from 33% in the last year. It clearly indicates many IFAs have gone out of the business," says Surajit Misra , EVP and national head - Mutual Funds, Bajaj Captial.
"If the IFAs don't have a diverse portfolio to offer, they would find it very difficult to survive. Only large distributors , national distributors and banks are able to sell mutual funds now," says a head of distribution of mutual funds in a broking firm.
However, critics point out that the industry is clinging on to the past and not making any effort to switch to the new regime. "It seems the MF industry wants to go back to the time when they used to reward their distributors handsomely.
Sure, you have to get back the distribution strength and must find ways to incentivize, but the industry should look at the brighter side of the picture," says a financial advisor. "Fund houses have stopped the practice of coming up with unnecessary new fund offers (NFOs)
Source : ET
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Saturday, July 9, 2011
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