Financial advisors prefer selling Ulips and the equity broking business.
Sanjay Tandon, a Bhopal-based financial advisor, is least interested in selling mutual fund (MF) products, despite the market regulator having ensured Rs 100-150 as incentive for distributors. He says it’s a drop in the ocean and does not make selling mutual funds lucrative.
Tandon is not the only one who thinks so. A quick visit to independent financial advisors (IFAs) across states by Business Standard witnessed stiff resistance against pushing more MF products. IFAs in states including Maharashtra, Gujarat, Rajasthan, Madhya Pradesh, Himachal Pradesh, Uttar Pradesh, Bihar, Jharkhand, Assam and Punjab were contacted for feedback on the recent regulatory move.
The Securities and Exchange Board of India (Sebi) had last week allowed a transaction charge of up to Rs 150 for a minimum investment of Rs 10,000 in mutual funds to be paid to distributors. Sebi chairman U K Sinha had said there was a trend showing a reduction in the sales of MF products in small towns. “So, in order to correct this situation and spread MFs in smaller towns, newer places and newer investors, some of these decisions (including a transaction charge of up to Rs 150) have been taken,” he had said.
However, it seems the move has not gone down well with the country’s IFAs. This could mean the long-awaited attempt to help the MF industry penetrate deeper in the retail segment may not take off.
Today marks the second anniversary of the entry load ban in equity MF schemes, which came into effect on August 1, 2009. But, the domestic fund industry continues to struggle to arrest the dwindling number of retail folios and continuous erosion in assets under management.
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The number of equity folios, which are largely of retail investors, have dipped by a whopping 2.4 million from 41.1 million in March 2009 to 38.7 million as on June 30, 2011. Moreover, there has been a 30-40 per cent fall in the number of IFAs, which was close to 100,000 two years back.
Ranchi-based Shiv Pujan Pathak says, “I get more commission in selling insurance products, mainly Unit Linked Insurance Policies (Ulips) which offer a commission of at least 10-15 per cent. Besides, equity broking is also lucrative. MFs stand nowhere in comparison, as Rs 100 won’t help recover my costs.”
Financial advisors say Sebi’s move essentially means whether you bring Rs 10,000 or Rs 100,000, distributors will be rewarded with only Rs 150. “With such a meagre amount, how can we be interested? Earlier, I was making a reasonable amount of around Rs 2,000 if clients invested Rs 1 lakh,” says Laxmikant Rungta, a Jaipur-based financial planner who has drastically brought down his MF sales to one-tenth of what he used to do before the entry load ban.
Gyan Prakash Tiwari from Kanpur says if a 2.25 per cent load is brought back, a second thought could be given to selling MF products. “But as of now, it’s a straight no.”
Industry experts agree with the plight of IFAs. CJ George, managing director, Geojit BNP Paribas Financial Services, says, “This is not a good enough incentive for mutual fund distributors to push for these products. Distributors have to travel to the investor’s house to sell the product. So, they may end up spending more than Rs 100 just to get the investor’s signature.”
Interestingly, this is in contrast with what the MF industry thinks as it welcomes the regulator’s move. Milind Barve, chairman of the Association of Mutual Funds in India (Amfi) and chief executive officer of the country’s second-largest fund house HDFC MF, says, “Sebi’s move for the mutual fund industry is an excellent one and we welcome it. Distributors needed to be incentivised to sell MF products. With this move, I believe the industry will get to reach small investors in smaller cities.”