Entry load on Mutual Funds and Sebi's double role

The Economic Times wrote a few days ago that the mutual fund advisory committee has suggested a 2% entry load. Business Standard wrote today that no such thing was discussed and the minutes were doctored. If true, this only shows lawlessness inside SEBI. Here is a video discussion between Sucheta Dalal and Debashis Basu both of whom were in SEBI committees in the past, about how the committees function and the whole issue of entry load

Welcome to another Moneylife Discussions this time on the mutual fund industry and the whole issue of entry load. Sucheta Dalal, Managing Editor of Moneylife and Debashis Basu, Editor and Publisher of Moneylife discuss the issue.


CB Bhave, former chairman of Securities and Exchange Board of India (SEBI) scrapped the entry loan on MFs. However, this was an abrupt decision. There is no public record of who said what in the Advisory Committee meeting at that time. There is a lack of transparency as to what is happening in SEBI. “They should publish the minutes of the Advisory Committee meetings. It will also ensure that if a committee member is partisan—that becomes public,” said Mr Basu who himself has served as member of the SEBI advisory committee on mutual funds.


According to Ms Dalal, in all committees, whether it is advisory committees or expert committees, the majority representation is from industry or intermediaries, lawyers, chartered accountants, company secretaries—who all derive revenue from the industry. While the entire effort of everybody is to ‘sell’ products to retail investors, their representation is limited to one or two persons.


“Entry load is not correlated to the growth of the industry,” said Mr Basu, adding that there is one thing alone that can bring back investors—excellent performance and committed outreach. “Most of the fund companies don’t beat the benchmark. Mutual fund companies do not engage the savers and prefer to sell through third-party. They also need to tighten their belts,” he said.



Sandeep Consul

4 years ago

Yes, its true that there are lot of schemes which don't beat the benchmark. But there are even more which beat benchmark just by a whisker. There was a recent interview of a senior official of Morgan Stanley Mutual Fund (India) that our objective is to beat the benchmark by 2-3%. So if benchmark is down by 25% a -23% performance fetches bonus for the fund manager. Is that why Fund Managers are paid Salary in Crores just to beat the benchmark by 2-3% ? Is this the whole idea of "Fund Management" business ? To beat a benchmark in which stocks are included when there prices are in 4 digits (Zee, Satyam, Unitech) and excluded when the price drops to double digit - does this require specialized skills to "buy high" and "sell low"? Foreign trips of Distributors is still continuing with daily mailers to distributors for achieving certain targets to qualify for these.

You are absolutely right - unless the Mutual Funds focus on the performance (and tht also -absolute-not just against the benchmark)-its difficult to get the investors back. When you meet these fund managers you are shocked to see how complacent they have become (realizing what a no brainer its to beat the stupid benchmark). They easily scare away their sales team or distributors asking any intelligent question or questioning the poor performance by throwing some technical jargon at them. The foucs must shift on the "Performance" rather than "Entry Load" etc.

More often than not a fund manager manages more than one scheme - for example a star fund manager of a very big fund house is managing three different mid cap schemes (which itself is funny - and the fund house employees literally put their foot in their mouth justifying having three mid cap schemes). Simply by law of averages one scheme will be a an outperformer three years down the line, one will be an average performer and the third one will be a poor performer. Investors will probably end up loosing money in 2 out of 3 schemes but the fund manager will be able to save his job beacuaue of one outperformer. The sales team will go ga ga about this scheme and say oh ! you should have invested in scheme A (a no brainer post mortem) - see last three years return. They will market this scheme A to all the investors showing last 3 years performance. More often than not Scheme B or C will outperfom for the next 3 years, fund manager has something to show to save his job and the investors are the only loosers in this game. Ideally a fund manager should manage only one scheme and should be full accountable for its performance.


Debashis Basu

In Reply to Sandeep Consul 4 years ago

Thanks Sandeep,

But most of them do not even beat the benchmarks. And what benchmarks are we taking about. Did you know that scam-tainted shell company HFCL is among the India's top 500 companies? It is in NSE500 and BSE500

Indecisive market: Weekly Market Report

If the Nifty breaks Friday’s low, it may head for 5,200

The market closed in the positive for the second week in a row on hopes that the Indian government would renew efforts to push growth-oriented reforms and easing of global uncertainties. Going ahead, headline inflation numbers for July, which will be announced on Tuesday, will lead the market in the holiday-shortened week.
The Sensex closed the week at 17,758, up 360 points (2.09%) and the Nifty climbed 105 points (2.01%) to settle at 5,320. The market is now in an indecisive phase. If the Nifty breaks Friday’s low, it may head for 5,200.
The indices closed higher on Monday on firm global cues and sustained buying in blue chips. The market closed in the positive for the second day on Tuesday on assurances from the new finance minister to look at easing interest rates and review the retrospective tax provisions. On Wednesday the benchmarks pared all their gains to settle flat on selling pressure in Bharti Airtel on account of its dismal quarterly performance and lower growth forecast by global research entities.
Dismal industrial production numbers for June, forecast of lower GDP growth and not so impressive corporate results resulted in the indices settling lower on Thursday. The market settled flat with a negative bias on Friday following a clutch of disappointing quarterly results and subdued global cues.
Among the sectoral indices, BSE Auto and BSE IT gained 4% each while BSE Consumer Durables settled 2% down in the week.
The top gainers on the Sensex were Sterlite Industries (up 9%), Mahindra & Mahindra (up 8%), Hindustan Unilever (up 7%), Reliance Industries and Hindalco Industries (up 5% each). The key losers were Bharti Airtel (down 14%), State Bank of India (down 6%), Hero MotoCorp, Dr Reddy’s Laboratories (down 2% each) and HDFC (down 1%).
The Nifty leaders were Sterlite Ind (up 9%), M&M (up 8%), HUL (up 7%), Ambuja Cements and Kotak Mahindra Bank (up 6% each). Bharti Airtel (down 14%), SBI (down 6%), Ranbaxy (down 5%), Bank of Baroda (down 4%) and Cairn India (down 3%) were the key losers on the index in the week.
Industrial production declined by 1.8% in June, mainly due to poor show by the manufacturing and capital goods sectors, indicating a persistent slowdown in the economy. Similarly, industrial output in the April-June quarter too contracted by 0.1% this fiscal. “The June 2012 IIP numbers are disappointing and are a cause for serious concern,” an analyst opined.
Moody’s Analytic, a unit of Moody’s Investment Services, lowered the GDP growth forecast of India to 5.5% for 2012 and 6% in 2013, from 6.2% estimated earlier. The agency cited lack of government or RBI action despite a broad-based slowdown, as well as a poor monsoon. CLSA and Citigroup also cut their outlooks for India to 5.4% and 5.5%, respectively, although for the fiscal year ending in March 2013.
While the Eurozone debt issues are still lingering, global markets were comforted by a plan of action laid out by European Central Bank president Mario Draghi, even though it lacks clarity. This apart, The US Federal Reserve has promised to take action if needed, and traders are eying its September meeting for an announcement of a new bond purchase program.




4 years ago

Markets are running ahead of fundamentals. Lot is being expected from Chidambaram but his past involvement in scams will come home to roost and he will fare no better than Pranab in taking drastic steps for reviving economy. As we inch towards 2014, politics will take front seat. Liquidity game will peter out and there could be a big fall in markets.

Shun plastics! Bring back the reusable and recycled cotton or jute bags

Shun the plastic bag and carry a reusable cotton/jute bag when going shopping! If each one of us can spare a few minutes, we can make the earth a better place to live

Although India is reeling under the depressive conditions of the poor monsoons with most areas having received inadequate rainfall, customary preparations are underway to celebrate the Diwali festival a few months from now.
As a general rule, Indians are resilient enough to overcome the setbacks and are born optimists who always look forward to a better tomorrow than today. Somehow, things will change for the better, is their ‘gut’ feeling all the time.
They are quick to realize their own mistakes but not courageous enough to openly admit their faults. And most manage to not repeat their mistakes. Yet, they are quick to find fault with others, a trait that runs deep in their system, but, again, they would not like to admit it in their own selves!
Often, they are exposed to attend meetings, seminars and workshops or conferences that cover the need to protect the Environment. They hear about how each one can really make a contribution to preserving the environment and saving the earth from untold havoc that plastics can and cause, by careless disposal methods.
It is not about the plastic cards that they carry in their wallets that cause real trouble and havoc in their finances but the bags that they get when they go for shopping, whether it is to buy a kilo of onions or a few home required items of grocery! Soon after they reach home, these plastic bags land in the garbage cans, which, ultimately are dumped here, there and everywhere!
Though the death toll would vary from city to city, it is the stray cattle that become victims when they munch through the garbage and get choked. In many places these dumps are also hunting ground for stray dogs and street scavengers who go through the rubbish to collect recyclable waste.
Unlike the westerners, whom we ape in more ways than one, we have not yet learnt the real civic responsibility is disposing the rubbish we generate every day at home in terms of segregating the usable and the unusable waste.
For instance, most the wet waste, such as the vegetable peels, stems, leaves, etc can be converted into organic manure to start small kitchen gardens and make the earth a better place to live in. After all, more greenery will automatically invite nature's reaction by greater rainfall than we have today. Every city can be a garden city!
We started this issue with Diwali, didn’t we? Yes, most business houses have either placed or in the process of placing orders for their Diwali gift boxes that would carry a variety of sweets, dry fruits and so on. Sometimes, these gift boxes will themselves be recycled and one may pass on the incoming gift to another. After all, what can one do when he/she receives so many gift boxes from well wishers?
Of course, these colourful expensive cardboard boxes, gift wraps, plastic boxes and trays will eventually find their way to the garbage piles, only to be collected by poor scavengers for recycling.
What is the simple step that we can take?  Shun the plastic bag and carry a reusable cotton/jute bag when going shopping!
As for the business houses, here is a clarion call—why not make this year, the year of the cotton gift bag and make it an annual issue? Cotton bags, carrying your advertisements will be used over and over again, and remain handy and useful for years to come.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at [email protected])



anantha ramdas

4 years ago

There is one other issue relating to this plastic bags that we all need to remember.

If one does not carry a cotton or jute bag when going for a shopping, they are penalized by the shop keeper. Yes, Reliance Fresh, Hopcoms and many others simply charge Rs 2 for a recyclable 40 micron thickness plastic bags!

Not only you pay for the mistake of not carrying your bag, but unwittingly act as the walking Advertisement Lamp post with the printed advertisement materials of the shop concerned!

And what is the actual cost of these bags? Not more than 25 paise a piece! The government has not thought it fit to put a
MRP for these bags!

Citizens are fleeced everywhere.

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