The Securities and Exchange Board of India (Sebi) has expressed concern over the unfamiliarity of independent financial advisors (IFAs) in the mutual fund business with the alternate distribution channel of 200,000 exchange terminals across the country.
K N Vaidyanathan, executive director of Sebi, today said marrying the advanced distribution channel of exchange terminals to MFs was a challenge. He was speaking at the Motilal Oswal ETF conclave.
“They (distributors) believe they will get two per cent (commission) when somebody buys. It’s now two years (since the ban on this entry load), and they are still to reconcile to the change. A large majority of them are still hopeful that it will come back in some form or shape,” he said.
Adding: “IFAs believe that moving to the stock exchange means getting out of business, notwithstanding the fact that stock markets have a long history of brokers and sub-brokers who have not encroached into each other,” he said. But there is a community (IFAs) not much familiar with this, he said.
The MF industry, said Vaidyanathan, still had work to do on creating value to get new customers. “In the last 15 years, the industry grew fat by having a plethora of mutual fund products launched to suit the flavour of the season. The key stakeholder and the beneficiary was the distributor. Through this period, the number of investors in MFs has not grown that much.”
He said the consumer had consistently demonstrated concern about value and price. “At a price purchasing point, there is huge demand opportunity in India,” he said. And, noted that brokerages, depository charges and settlement charges had come down during this period. “Even exchanges and the regulator have reduced fees. However, when it comes to mutual funds, the cost to the consumers has not come down; it is still approximately two per cent.”
Vaidyanathan said every fund manger believes he creates a piece of art by virtue of creating a portfolio and actively and dynamically managing that. “But all of it has to translate something to the investors. The question we need to ask is the value proposition a fund manager makes to the investors.”
He said exchange traded funds should be pitched not to the fund managers but to the CEO of the mutual fund. “He (CEO) will understand it is better to earn half a per cent on Rs 10,000 crore than earn two per cent on Rs 100 crore.
