A section of the mutual fund industry plans to approach the Securities and Exchange Board of India (Sebi) to bring distributors/agents of mutual fund products under the regulator's ambit.
The move is in response to the way distributors are offering incentives to their employees to bring in more business, which, some MF heads feel, is destroying the very fabric of the mutual fund culture. The heads of some of the funds have already approached the chairman of the Association of Mutual Funds of India (Amfi) A P Kurian in this regard and a formal representation to Sebi is expected soon. Just recently, Sebi had made it mandatory for distributors to get Amfi certification in order to market MF products.
In the effort to bring in more business the employees or agents of distributors might be mis-selling MF products, is the general feeling in the sector.
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"Agents and distributors should ideally try to find out the risk appetite of investors and their needs and accordingly suggest a scheme. But it is all target driven now," said the head of a private sector fund. In the race to get ahead and then to be eligible for rewards offered, agents are known to be going to any lengths to bring in the money. Some even assure unsuspecting investors that their investments would be generating a fixed return.
The disgruntled lot among the MFs are hoping that Sebi will frame regulations for distributors as well prohibit them from offering incentives to their employees or agents. This is expected to being in some coherence into the way that mutual funds are distributed and marketed in the country.
Incentives to agents and employees varies - from a holiday in Dubai (the most preferred option and destination) and South East Asia. stays in five star hotels in within the country to various kinds of products depending on the amount of business which is brought in.
Mutual funds is a poorly understood subject among many categories of investors - it being largely viewed as comparable to investments in equity shares. The MF sector has been at great pains to dispel this notion through seminars and investor education programmes. Funds want investors to understand that MF schemes should be viewed as long term investments and with the exception of money market funds, should be treated with a long term perspective in mind.
Most MFs turn a blind eye to how their distributors bring in the money so long as they do it even if it means that their investors have not fully grasped the downsides in investing in a MF scheme, industry circles said.