Govt bans FDI in cigarette manufacturing

In 2008, the government had banned smoking at public places and put a curb on tobacco advertisements

Taking its anti-smoking drive forward, the government today banned foreign direct investment (FDI) in cigarette manufacturing in the country.

Home minister P Chidambaram said that FDI will be prohibited in cigarette manufacturing, whether it is for domestic consumption or for exports.

“The approval is expected to enhance public accountability by way of the government’s commitment towards proliferation of (the) anti-smoking regime in the country,” he told reporters after the CCEA meeting.

The decision to ban FDI is the latest in the government’s long-standing drive against smoking. In 2008, the government had banned smoking at public places and put a curb on tobacco advertisements.

The proposal for banning FDI in cigarette manufacturing was mooted by the Department of Industrial Policy and Promotion and approved by the Cabinet Committee on Economic Affairs (CCEA) in its meeting.

“Prohibit FDI in manufacturing of cigarettes and to include the activity in the list of activities prohibited for FDI,” the official release said.

When asked about the existing foreign investment in the tobacco sector, Mr Chidambaram said the matter did not come up for discussion in the CCEA.

Under the existing norms, 100% FDI is permitted in cigarette manufacturing, but an industrial licence is required and the proposals need to be approved by the Foreign Investment Promotion Board (FIPB).

With the CCEA banning foreign inflows, Mr Chidambaram said, “This would bring the policy in line with the administrative decision not to grant industrial licence for cigarette manufacturing.”

The move would also align FDI policy with the existing legislation on tobacco control to a greater extent, the minister said.

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At last, AMFI ups the ante against mutual fund mis-selling

The industry body has issued warning notices to HSBC, NJ India Invest, HDFC Bank and Kotak Mahindra Bank for not complying with NOC norms and luring investors to change distributors to garner trail commission

The Association of Mutual Funds in India (AMFI) has finally woken up to the messy game of assets under management (AUM) transfer and rampant mis-selling of mutual funds by banks and national distributors.

The industry body has sent warning notices to HDFC Bank, HSBC Bank, Kotak Mahindra Bank and NJ India Invest to stop this practice, reports CNBC TV18. AMFI has also sent a stern signal that if they don’t comply with the guidelines, AMFI will consider withdrawing their licenses.

Interestingly, Moneylife had first reported this practice on 2 February 2009. Post the implementation of the trail commission norms, AUM transfer by unethical means was gaining traction, and distributors and investors were being duped into signing dubious letters. (See here and here).

In the first article, we had identified HDFC Bank and NJ India Invest as among those distributors who were indulging in this practice. Now AMFI has acted against these two entities. AMFI is also in the process of issuing notices to other such entities.

Ironically, according to some smaller distributors, KN Vaidyanathan, executive director, SEBI, had addressed a gathering of distributors at the Bombay Stock Exchange (BSE) earlier this year where he had said that they should follow the practices of NJ India Invest and openly lauded the “ethical services” provided by NJ India Invest.

According to sources, NJ India Invest has a dedicated team for encouraging switchover of assets. In some cases involving national distributors, investors are duped into signing letters which eventually leads to a change of distributor, without the knowledge of the investor. The ban on no-objection certificates (NOCs) was supposed to ease investor woes while changing a distributor, but some players continued to demand an NOC from investors.

The entry of bank distributors in the MF distribution game is unlikely to end mis-selling of MFs. (See here). Recently, the State Bank of India has trained 18,000 employees to sell MFs through its banking channel. After SEBI allowed MF units to be traded through the exchanges in December 2009, brokerage houses have started providing free demat accounts to earn trail commission. Sources reveal that while converting physical MFs into demat forms, investors are made to sign a change of distributor. (Read here).

A Pune based certified financial planner K V Balaji  recounts his experience with ICICIdirect: “I have received an SMS from ICICIdirect, offering a 'free service of converting offline mutual fund investments to online investments'. On calling the number, the person spoke about ICICIdirect offering a free service. When I asked how will ICICIdirect garner any revenue from this 'free' service, he didn’t talk of the trail. Instead, he stated that ICICIdirect would manage yearly maintenance fee of Rs500 per account holder from its demat accounts.”

However ICICIdirect denied having any such scheme which provides a free or even a discounted demat account based on mutual fund conversion.

Our email queries sent to HDFC Bank, Kotak Mahindra Bank, NJ India Invest and ICICIdirect remained unanswered till the time of publishing this piece.

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COMMENTS

A Trivedi

6 years ago

There is no effective deterrent against misselling. Self regulation never works. There is no remedy for the investor who has in reality been duped by an 'advisor' working for a bank. These advisors are under pressure to generate revenue or lose their job.
Who compensates the investor for loss of hard earned money? Is there a step beyond these chat forums?

Sanghit Mallick

7 years ago

ref recent mf scam, the license of 4 co's should have been cancelled, some person still praising some co.what is the vested interest in it? it's a "brastaachar"-- why u r gulfing the poison? if it is so, then further more is yet u r inviting. will it be healthy for the financial sociey.Think it again.,because I'm very strong,but u r not.

amarish shah

7 years ago

miss sellling is one part and the second one is the field force of these
cos and corporate were collecting the
applications from the investors for changing th broker.
i am also the victim of the same.
this should be immideatly removed by the govt authorities.

J

7 years ago

AMFI SHOULD HAVE BEEN 'ASSN. OF MUTUAL FUND INVESTORS'!INSTEAD, IT REPRESENTS THE GREEDY AMCs AT THE COST OF MILLIONS OF INVESTORS!

IT DOES NOT EVEN BOTHER ABOUT ANY ISUEADDRESSED TO THEJ



dillip swain

7 years ago

Mainly mis-selling created by all new generation banks, like AXIS.ING,ICICI ,CITY etc. Now psu starts mis-selling.mainly sbi is leading for selling sbi mf. In sbi & other psu, some staffs are promoted from class iv. amfi should take close action rural areas,tier iii/iv/v & vi cities. In cuttack city (undivided),orissa axis,ing,icici,hdfc & sbi leading role on misselling of L.I. & M/Fs,

Santhana

7 years ago

Yours is a lone voice in the great riff raff of the Phoren banks against IFAs. Why Citi is not mentioned in your report. What does Mr Vaidyanathan know to praise NJ Invest or it reveals something we do not know? SEBI and AMFI have killed the spirit of the IFAs and now they are lamenting the fall of SIPs and collections. Great

Ashit Kothi

7 years ago

One thing which every one understands as early as possible ie there is nothing like free in this world -"THERE ARE NO FREE LUNCHES"

pandharinth Prabhu

7 years ago

Kudos to k.N.Vaidyanathan who did not know what is rotten below the carpet. Please do not praise anybody u do not know hwo is doing what?i

Tapas Chakraborty

7 years ago

such and many other unethical practices are rampantly being followed by the banks who are charging huge commissions (without proper disclosure) and also are getting high compensation from the AMC's under various dubious heads. It would be very nice if we can build a platform were we can report / discuss such malpractices and remedy them

A K Shah

7 years ago

Just pre-planned notice to rich and wealthy hdfc nj hsbc kotak and punishment to poor small ifa.

Cancellations, ceased accounts outstrip new SIP registrations in March

According to latest data obtained by Moneylife, new SIP registrations have been overshadowed by cancellations and ceased accounts in March, which is supposed to be a boom month for investments

While stock markets are charting an upward course for several weeks now, mutual fund investments have exhibited a contrarian trend. The latest exhibit in this grim scenario is the rapidly declining investor interest in systematic investment plans (SIPs) of mutual fund schemes.

Here are the bare facts. Since December 2009, new SIP registrations have witnessed a steady downhill trend. New registrations in SIPs have gone down from about 280,000 in December 2009 to around 225,000 in March 2010.
Meanwhile, the number of SIP cancellations has increased from around 67,000 in January this year to around 83,000 for March. Between February and March, the number of ceased SIP transactions has gone up to around 108,000. Most alarmingly, cancellations and ceased transactions are more than the new SIP registrations for the month of March, a month when people make a lot of investments.

A SIP allows an investor to invest in a mutual fund by making smaller periodic investments (either monthly or quarterly) instead of a large one-time investment. This makes a SIP the preferred route for investing in funds for most investors.
All this while, the Sensex has been rising steadily and even touched 18,000, a 25-month high. Moneylife has previously written about how recent mutual fund outflows have defied stock market trends. (see here).

Recently, we also revealed how redemptions from mutual funds have consistently outpaced subscriptions from August last year, when the Securities and Exchange Board of India (SEBI) introduced the no-entry load ban. (see here).

Market players suspect that most of the current woes being experienced by this industry stem from the whirlwind initiatives taken up by SEBI to ‘fine-tune’ the industry practices. However, industry leaders have defended the new system by arguing that the industry would adjust to paying commissions, sooner than later. Their contention is that investors are pulling out money from MF schemes to book profits.

But, as pointed out by Moneylife, this is nothing but a veiled attempt to hide the fact that SEBI’s new rules regarding entry load and trail commissions do not help anybody, least of all investors because of the uneven playing field of the investment landscape. With commissions vaporising into thin air, distributors have lost incentive to sell mutual funds and are instead pushing heavy commission-earning products like unit-linked insurance plans (ULIPs) and corporate fixed deposits which are against investors’ interests in some cases.

An independent financial advisor (IFA) pointed out that apart from the lack of incentive to sell, distributors also face other hurdles in promoting SIPs. “Even banks and national distributors are not interested in selling SIPs as it is a very slow-earning option. Also, even if a distributor promotes a SIP, he is not assured of regular income anymore as some national distributor may poach his running SIP any time. Uncertainty of future trail (commission) and transfer of assets under management (AUM) is the main hurdle for brokers to promote SIPs.”

The IFA also pointed out that filling the SIP application form is very cumbersome and technical. There is no standard format across asset management companies (AMCs). Every AMC asks for data in different formats.

User

COMMENTS

seetharaman.k

7 years ago

we have to laugh out loud at sebi&its line of thinking that ppl will work to amc`s for free&fill the coffers of government

MK

7 years ago

In India it is a reality that mutual funds are sold and not bought. SEBI is still miserably failing to work out means and ways to educate the masses for investing in mutual funds. From the recent spate of regulations it will only make the investors and the distributors move away from a wonderful product called mutual fund. I think it will be too late before anyone from Sebi listens. God save Sebi.

ROOPSINGH SOLANKI

7 years ago

THANKS MONEYLIFE TEAM FOR PROVIDING DATA FOR THIS ONE OF BEST INVESTMENT METHODS IN MF-BUT THE GROUND REALITY IS THAT WHO IFA WILL GO TO ASK MONTHLY SIP COMMISSION CHEQUE FROM INVESTOR-OR WHICH CLIENT WILL WILLINGLY PAY FOR 3 YEAR/5 YEAR SIP IN LUMPSUM-WHEN INVESTORS REALLY DONT PAY FOR LARGE AMOUNT LUMPSUM SINGLE PURCHASES-I JUST ATTENDED CFP REGISTARTION WORKSHOP BY FPSB-WHO CLAIMED THAT CLIENTS WILL PAY FEES AFTER ONE HAS COMPLETED CFP-BUT WHEN WE INQUIRED EXISTING CFP IFA'S-THEY TOLD OPENELY THAT CLIENT IS NOT BOTHERD TO PAY ANY FEES EVEN TO A CFP-THE REALITY IS THAT WHEN WE ARE HAVING HEADACHE OR COLD-WE DONT GO TO A M.D. DOCTOR-BUT OFTEN WE PREFER TO TAKE MEDICINE FROM CHEMIST OR ANY MBBS DOCTOR-SO WHY SOME ONE WILL PAY HEFTY FEES TO CFP WHEN HE WANTS TO BUY ELSS OR WANT TO INVEST IN POST OFFICE OR BANK FD-THIS ALL RUBBISH BRAINWASHING OF IFA'S IS GOING TO DO MORE HARM THEN ANY GOOD FOR CLIENTS AND INDUSTRY-

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