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The chairman of the Securities Exchange Board of India, UK Sinha announced today that new investors will have to pay an additional Rs 150 for investment of Rs 10,000 and above in mutual funds, while the charge will be Rs 100 for existing investors.
Chairman of the Association of Mutual Funds in India (AMFI) and chief of HDFC Mutual Fund, Milind Barve tells CNBC-TV18 that the decisions taken by SEBI are a good for the future of the mutual fund (MF) industry. “The MF move is not intended to increase cost for distributors. Instead, it is a good step towards regulation of Mutual Fund (MF) distributors in India” he said in an exclusive interview.
Below is a verbatim transcript of his interview of his interview with Shereen Bhan. Also watch the accompanying video.
Q: This will come as a relief for you; specially given the fact that entry load had been done away with under the former SEBI chief Mr Bhave. But how materially beneficial is this going to be for the mutual fund industry?
A: The larger question for us is not to sort of harp on entry load. The real challenge for the industry has been to attract small investors, not just in large cities and metros but also in smaller towns. Also, there was a need for atleast some sort of incentive for the small distributors, typically called as independent financial advisors (IFAs), who were sort of not in the running. I think this is a very positive step because we need to make a step forward towards getting suitable incentives and structure for distributors at the lower end of the curve; not the people who are dealing with large investors or wealthy investors.
Q: Is this incentive enough, Rs 100 and Rs 150 is this incentive enough?
A: I think it is enough because we are looking at small investor’s money and we are looking at a small distributor; that’s exactly the point I am making. I don’t think the objective of this particular move is to create large incentives or big cost to investors. The idea is indeed in the right direction because it is not the intention to increase the cost to the distributors, but at the same time, providing some sort of an incentive for a small distributor. Therefore, the Rs 100, small as it may seem, will be effective because we are looking at small ticket deals and the industry has to focus on the small ticket deals. This is not about large ticket deals, whether it is incentive to sell or not.
Q: Another welcome step in that sense is also the fact that there will no be a single know-your-customer (KYC) norm across various entities and products. Now that should certainly make life simpler and also perhaps bring down cost of compliance, wont it?
A: Yes it is, KYC being done by multiple financial intermediaries in the capital market really put up a lot of burden. Look at it this way, this is not about the fund industry, this is just investor friendly. It is just going to prevent him from repetitively going through the similar process to prove, as KYC does, who he is. I think this is something that is really required and I think it will really help the investor more than any particular industry.
Q: The other thing that the SEBI board has done today is bring in regulations as far as distributors are concerned. All distributors with more than 20 points of presence or who have raised Rs 100 crore from the industry, from the retail or the HNI side, will fall under the ambit. There are several other clauses by which they will fall under the ambit of the regulations, but we don’t have details on what these regulations will be. What do you anticipate?
A: I think asset management companies (AMCs) will be expected to do some due diligence on a regular basis of distributors who meet any one of those three or four criteria. The objective seems very clear- that we make a beginning from bringing under the due diligence process the larger distributors, who indeed do form a significant part of the industries asset under management (AUM).
So I think it’s a good beginning towards distributor regulation. You start from the people who have large share in distribution business, you start from large distributors and basically you would cover them through a due diligence process which is done regularly. You see that they meet the standards of good practices on selling, how to recommend funds, what is the commission structure earned or what are the standards of disclosures.
I haven’t seen really the details of what the regulation is going to be, but when you say something like due diligence, I would expect it to be reasonably broad. If you have distributors who are subjected to some degree of due diligence, it only increases the transparency for the distributors and will only increase the confidence with which investors can then deal with that distributor.
Q: So bottomline, you welcome the move made by SEBI today as a big boost for the mutual fund industry?
A: Yes I do. I think it’s a great move forward and I think we should look forward with it and work closely towards making this effective.
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