Sunday, March 14, 2010


SEBI have been formulating various policies for the Indian financial market in order to bring parlance among all categories of investors and the most important one to protect the hard earned money of the investors. The finance markets have been rattled with each and every new policy taken up and implemented on the industry. The worst affected are the mutual fund industry. This segment have been affected so much that now the segment is on the path of stagnancy. Their are mixed comments and reactions from every corner of the industry.
What SEBI did to mutual fund industry?
• SEBI scrapped entry load on mutual funds of all type.

• The upfront commission to distributors shall be paid by the investor to the distributor directly.

• Earlier it was waiver of entry load on direct applications made by investors to AMC. Later on it got abolished on all investments.

• This move gave a hit to the mutual fund industry profits. Particularly the AMC and the distribution companies.

• The distributors shall have to disclose the commission, trail or otherwise, received by them for different schemes or MFs which they are distributing or advising the investors.

• The individual distributors simply came to an dead end particularly the ones who were price sensitive bargain makers.
The prime reason for bringing these changes was that to make investors to invest maximum of their funds and also to enhance the return over their hard earned money. Investors were also given proper disclosure support of investments made by AMC by making declaration mandatory by AMC each month. SEBI brought the changes for investors benefits but within couple of months it became clear that investors were perplexed to find advisors on the street.
The distribution network of Indian mutual fund industry which employed a healthy number of employees came down to street with a couple of months. Offices and networks were winded up and leaving unemployment from this business to generate. Thanks to the Indian statistical measure parameters that there are no ways to measure unemployment in India and even if there is something like this no one knows the reports of that unemployment.

Now a question might come that SEBI guidelines were revealing that seller should convert in to advisors so when an option of advisory was given then why companies and individual distributors took the hit. The ans lies within the system of sellers. It is never easy to convert all the sellers in to advisors in one fine morning. Moreover the Indian mechanism of product consumption is PUSH TO SALES. If no one is their to PUSH TO SALES then how consumers will come to know about the financial products. Now these products are no like FMCG or white goods where advertisement and demo will be given to make the process of sale. Advisory comes in to play, its like to find the best doctor among thousands of doctors. No before you find the best doctor the patient might collapse and meet his own destiny.

In plain words this is what happened to the current investors of the mutual fund market. Before one could do develop the advisory module in his business the competition of advisory was thrown on the table. The smart group of sellers took off the market and some played advantage on the advisory module. The end result came that investors were feared to have words or views of any one on the street followed with less investments by retail in to the mutual fund industry. Even the fund offering became dead or even went without notice.
• According to the data provided by the Association of Mutual Funds in India (Amfi), average asset under management of 29 fund houses stood at Rs 3,76,947.21 crore in February, up 4.3%, compared to Rs 3,61,289.88 crore in January 2010.This growth is due to tax saving months collections. ELSS are the ones which are able to garner such amount of business.

• If we go for some more specific details we find that out of 29 fund houses under review, nine fund houses registered a decline in their monthly average AUM with major decline.

• DSP BlackRock, Escorts, Fidelity, HSBC Mutual Fund, ING Mutual Fund, LIC Mutual Fund, Mirae Asset, Morgan Stanley, SBI Mutual Fund and Sundaram BNP Paribas were among other fund houses that recorded a negative marking in terms of AAUM growth.

• Assets of AIG Global Investment and Bharti AXA, were the worst hit recording a drop of over 12 per cent.

• In the month of February net inflows into the equity schemes of the mutual fund industry was Rs 1,514 crore. This is the highest monthly inflow witnessed ever since entry load was banned by the market regulator (from August 1, 2009).

• It’s well clear that investors are not very comfortable with investments advisory system.

Very recently the mutual fund industry was planning to propose the finance department of India that to make the lock in period of 3 years for all equity schemes juts like ELSS. The prime reason is to stop short term trading activities in mutual funds and to maximize return of investors over a longer period of time. If one is planning to bring such measures for the industry then it would be advisable to bring flexibility in lock in periods.

• Like wise if some one needs invested funds for a short term of period they will have to choose fund period for 6 months to 1 year. After that the fund will auto redeem without further new investment choice made.

• Funds where investor’s looks for long term capital appreciation will go for lock in of funds period of 2 years. These investors will get 50% tax benefits under section 80c and the taxation will be EET.

• And last but no the least the funds having lock in period of 3 years will get EEE options and tax saving category under section 80c.

These options will make the prospect of the industry more aggressive and to a certain extent will make the fund management process much relaxed and will stop them from living on the edge of sudden redemption pressure despite of exit loads. If SEBI is looking towards investors benefits then it should be user friendly for the both the parties involved in the transaction. It cannot be one sided process and cutting all trees on the name of investor protection.
More over the industry is suffering more of urban focused business approach. The industry needs to accept and learn that if they desire they can have wider area of focus and penetration in rural India. They need to educate people to bring savings and change older forms of savings in rural India. They should bring financial literacy among the rural India. Micro finance is among one of the area where mutual funds industry can play a wide prospect.

Now many of friends might come up with the views that the SEBI module was implemented to stop miss selling or bargain selling. I agree that bargain selling have been stopped but does miss selling got eliminated. In other way round miss advisory business have began and can SEBI stop this by brining any module. What about those who lost their bread and butter from this industry. SEBI did not lay any guidelines for value based selling’s. Neither value based sales approach nor have techniques been described and designed for the industry. SEBI is not looking into these guidelines which will guide the investors was well as the industry. Even if miss selling of advisory business is made there is hardly any active and immediate grievance cell. Even what documentations need to be kept in advisory business as a matter of proof to keep the advisor as well as the investor protected is not even laid on the table. I leave rest of the debate to my readers asking them is this the process of doing financial growth of an industry and controlling miss selling.


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