In advanced talks with Nippon to sell stake in Reliance Capital: Anil

Speaking to the shareholders at the company's AGM, Reliance Capital chairman Anil Ambani said the company is looking at unlocking value by divesting across its businesses and is in 'advanced stage' of talks to sell a stake in its asset management and mutual funds business to Nippon Life of Japan

Mumbai: Reliance Capital chairman Anil Ambani today said the company is looking at unlocking value by divesting across its businesses and is in 'advanced stage' of talks to sell a stake in its asset management and mutual funds business to Nippon Life of Japan, reports PTI.

Speaking to the shareholders at the company's AGM here, Mr Ambani also informed that Reliance Capital will explore all possible opportunities to enter the banking sector and announced that the banking entity of the group could be called 'Reliance Bank'.

The comments came in the backdrop of the company sitting on a huge debt of Rs18,483 crore as of June quarter.

In the quarter to June, its assets stood at Rs25,511 crore with a net profit of just Rs138.7 crore against Rs229 crore in the year-ago period and had net sales of Rs703.6 crore against Rs1,809 crore year-on-year.

The Reserve Bank of India (RBI) had come out with the draft guidelines for new bank licences last month in which it had said that the companies having a significant exposure to broking and real estate businesses would not be entertained.

Reliance Capital has a broking arm.

When asked by a shareholder about the banking foray, Mr Ambani said, "At an appropriate time when the RBI decides the actual process, we will pursue a banking licence."

Citing its recent divestment of 26% in Reliance Life Insurance to Japan's Nippon Life, Mr Ambani said, "This is an outstanding showcase of value creation and I am confident that we'll replicate that in each of our businesses as we move forward."

He said the company has recovered Rs3,000 crore capital it had invested in the life insurance business by selling 26% to the Japanese company.

Reliance Capital is also looking at expanding its asset management business to other emerging markets, expand its private equity and wealth management practices and looking at asset reconstruction company and bourses businesses.

Mr Ambani said, "We want to be among the top three in terms of market share, in terms of number of customers, in terms of profitability in whatever we do."

The company will be taking a conservative line in its debt profile, Mr Ambani said, adding that the Rs3,000 crore from Nippon expected in the next few weeks will be used to repay debt.

He also assured shareholders that he will be taking their requests of a special dividend and a bonus issue to the company board.


Investment Advisor Regulation I: SEBI’s ideas are, as usual, far from reality; may increase mis-selling!

If SEBI’s new norms on investment advisors come into force, mutual fund sales will decline even further and mis-selling of insurance products will increase!

When UK Sinha took over as the chairman of the Securities and Exchange Board of India (SEBI), small distributors were elated. As the head of Unit Trust of India, he had after all felt the impact of a series of harebrained decisions by SEBI under the previous regime relating to mutual funds (such as abolishing upfront commissions abruptly). Small distributors hoped that Mr Sinha would reverse the previous decision or at least make sure that distributors are incentivised in some way. He stunned them by coming out with a more harebrained idea-a small charge to first-time investors. Polite criticism pointed out a simple flaw-how do you define "first-time"? It was no surprise that SEBI had not thought about it. It usually doesn't.

SEBI under Mr Sinha has now a gone a step further which would create major headwinds for the fund industry, especially after an 22nd August circular which asks mutual funds to implement a segregation between an agent and an advisor. SEBI now wants to regulate investment advisors and that too through the completely failed concept of Self Regulatory Organisations (SROs). No matter that its grievance redressal system is not exactly pro-investor, no matter that there is no surveillance worth talking about and market manipulation is rampant, no matter that its consent order system allows crooks to get away, investment advisor regulation seems to be a priority for Sinha.

SEBI has just released a concept paper, which lays down how an SRO would be formed to regulate investment advisors who will be registered under SEBI. The crux of the regulation is: "No financial incentives/consideration would be received from any person other than (an) investor seeking advice". What does this innocuous-sounding rule mean?

First, distributors simply cannot provide advisory services for a commission; they will have to sell for a fee. This means that if one wants to earn a commission and not a fee (since investors don't want to pay fees) he would have to identify himself as an 'agent'. Unfortunately, this means getting a letter signed from an investor that he is buying the product out of his own free will and that the agent has not done any due diligence. Few investors are willing to give such letters. No distributor is asking for it, either.

Second, the only mainline investment product that comes under SEBI is mutual funds. Issues related to other financial products will be dealt with the respective regulators. As such, there would be no single body regulating investment advisors. Is there mis-selling of mutual funds? Well, there has to be selling first! Mutual funds are struggling to add assets-SEBI's August 2009 decision has ensured that interest in mutual funds has totally waned.

In August 2009, SEBI had banned entry load for mutual fund investments. Investors were free to decide the upfront commission to be paid to the distributor/agent, based on factors like assessment of the service of the distributor. The effect has been disastrous. From the time of the ban till August 2011, there has been huge outflow of money. SEBI simply was out of touch with reality when it assumed that investors and distributors would negotiate for the service. Even the healthiest financial services don't sell by themselves. That's the lesson from all around the world. It takes a lot of hand-holding and convincing to get someone to invest in volatile products like mutual funds. Devoid of upfront commissions, the agents simply did not want to take the trouble to sell mutual funds after August 2009. Many distributors were happy to push insurance products, which earned them higher commissions.

Under the new proposal of SEBI, this would not change. This would get aggravated. While very few people would be interested in selling mutual funds for a fee, an "investment advisor" selling only insurance products does not come under the proposed Investment Advisor Regulations. Therefore why would an existing advisor pay for a certification to become an "Investment Advisor" when he is "better off" selling ULIPs (unit-linked insurance plans) as investment products?

The media is full of stories of mis-selling of insurance products. From those nearing their retirement to 80-year-olds have been sold retirement products where they would have to pay a substantial amount for annual payment across 10 years. Sadly, even if the proposal of SEBI comes into force, such cases would continue. Incidentally, the biggest mis-sellers are large banks and SEBI's regulation will not affect them one bit.

Of course, one could argue that the intermediaries would find a way to get around these rules. That is the subject of part two of this series.




6 years ago

Firstly, I agree with the following:
1. Financials advisors and intemediaries need to be better regulated in this country.
2. It is the job of the regulators/ SRO, such like to regulate them.
3. Preferably regulations should not be hasty and ill-thought, and the industry and stakeholders (investors, manufactuers & intermediaries) should be given sufficient time to make the changes required for them to work under the new rules – which will help in a smooth transition.
4. Proper education is required to be provided to all the stakeholders, on how to engage their partners under the new rules

However, having read through the draft paper, I feel it falls short in many respects and needs significant amends:
1. Though the concept paper says the Indian investors are not yet financially very literate (para 2.4), they expect them to understand and differentiate the services of the agent from the advisor – and thus feel the need to pay for the services of the capable advisor – an ideal situation, don’t you think? I feel the time has not yet come for this in India. It requires a lot more “financial literacy” – which the concept paper itself admits, we Indian mostly lack.
2. They quote the FSA in UK – like a benchmark – however, one must note that the FSA and other US bodies are making regulations for people who are used to living in a culture where children – from a young age – are trained to respect and pay for help rendered – like it is any other job. So culturally, the people in these advanced economies are used to paying for services that they use. Though this will come about as we progress, maybe it will take a while before the regular investor in India feels the same way, and appreciate the fact that he/she needs to pay for financial advice.
3. Why are Stock brokers being excluded from the rules of the concept paper? Aren’t they also financial advisers in every sense of the term – if they are going to recommend a stock to buy? Are they scared that liquidity will drastically drop in the equity markets if they do so?
4. SEBI says nothing yet about whether they will differentiate financial products/ schemes - whether mutual funds or others - that will give a benefit to advisors to market themselves – like mutual funds for agents and mutual funds for advisors. Obviously, we can expect “Investment Advisors” to put pressure on SEBI/ AMCs to create lower cost products for them… This is likely to play out. But SEBI has not given a mention about it.
One main amendment/suggestion to this concept paper is this –
1. Have rules / guidelines set for working as an agent and as an advisor, separately. Obviously, the rules for advisor will be more stringent with higher level of audit & eligibility requirements. This can be overlooked by an SRO / as well as respective regulators.
2. Give all agents/ advisors to choose and work in both capacities if they meet the requirements set - . Here, it would presumably start with being an agent, and then elevate oneself to being an advisor. Some may choose to remain only as an advisor or an agent also.
3. Every client should be compulsorily be registered only as either one - “agent- relationship” or “advisor relationship” and subsequent agreements on fees etc should be drawn up at the start. This cannot be changed for each transaction.
4. This gives leeway for the agent/advisor to work up the value chain, while the client has the freedom to choose what relationship he wishes to have with the agent/ advisor to start with.

I hope that this suggestion is taken up. I call on distributors to write their suggestions/ feedback to the email id given in the concept paper.

Shrikant Kulkarni

6 years ago

The things were moving smoothly and the Industry was doing fine. Abolition of Upfront commission created a mess. Many people left the industry. Now SEBI wants to rectify the wrong but its ego hearts to reintroduce the entry load. They want to introduce the entry without it looking like an entry load. Funy,
what is wrong in accepting the wrong action and think to re-introduce the entry load. The rate may be brought down from 2.25% to 1.5% and close the chapter.


6 years ago

a verywell said analysis

srinivas chandolu

6 years ago

first let grow mf industry substantially.then they can come with new drafts.when inflation is going high n commissions are not matching to inflation how can a ifa will survive?gont wants to handover the business to corporates majorly.

Sweena Jain

6 years ago

There are innumerable regulations in our country.The more regulation higher are the chances for corruption.This new regulation seems for corruption only.
SEBI's one regulation is it is mandatory for all market intermediaries--COMPULSORY REGISTRATION.But many brokers looted public by appointing unregistered intermediaries which turned to be fly by night operators .There are no dearth of complaints with SEBI pending under this regulation.The stock exchange grievance resolution center are no better option.Most of the time Stock exchanges direct investors to opt ARBITRATION route at Investors cost and consequences.When there is break in any regulation the ACTION must be as per prescribed penalty in the said regulation.To sum up it is SEBI's act which are being opened for floodgate for corrupt and malpractice.And we should view SEBI's action in this scenario.

Dr Vaibhav G Dhoka

6 years ago

Here regulators are established by acts of parliament.Regulator is another form of INSPECTOR RAJ.Regulators once established wants to show that they are BOSS of organisation.They bring different regulation without application of mind.One such regulation is Self Declaration form to be submitted by every mutual fund ad visor(ARN HOLDER) to every AMC he is registered for the reason is ARN holder should not by Mutual fund on his own ARN number.Now SEBI should inform and give statistical data about this regulation.
1)How many ARN holders were booked under this regulation.
2) What is the cost AMC and ARN holders pay since this regulation came in existence?
3)Was this cost worth for this regulation?
4)How could this regulation prevent mis-selling?
There are so many fields where SEBI chief can act and give relief to petty investors.He should reign in Stock brokers,and see that his officials work for the benefit of investors and not collude with Stock brokers.
The investors grievance resolution department is worth dismantling as the DON'T work or work only for for brokers.In India regulation are for Extra earning for the regulator.i.e for proliferation of CORRUPTION.


6 years ago

i think in the comments we are fighting between us the core issue is wether it is relevant to apply the logics set by SEBI on advisory model how will you keep audio records will everyone carry a taperecorder. what is the sense ? secondly why an agent category who will again escape if after advisory he sells a different products are these issues redressable or will the regulator become court room to tackle the redress the simple solution is why the hell regulator is bent upon killing the mutual fund industry ? they dont have any other work are tese people accountable why they are charging high fees of registering the ARNs ?now other mad shot from TRAI to register for telemarketing the cost of registeration Rs.10000
are they just minting money for their enjoyments and asking us to go about begging for the fees can any regulator come down and show in reality how difficult it is to survive in this business forget the regulations who is ready to pay you fees? are we matured enough to understand our mindset before comparin to developed economies we have so much time to educate clients free of cost and the clients are enjoyiing the fighting going on between IFAS and IFAs


6 years ago

If I decide to be an agent instead of advisor does that mean I will not have to pay Service Tax !!!!

santosh roy

6 years ago

The Regulator has done so many things unnecessarily. The simple solution was already in place before Aug 2009. Those who want the products absolutely free, should go directly. Those who routes through Agents/Advisors they will pay the inbuilt entry load.

Isn't this the SIMPLEST SOLUTION ?


Deepak R khemani

In Reply to santosh roy 6 years ago

Did you think that Indian Regulators are here to simplify things?
They are there to make things so difficult that the weak agents will go away immediately, the not so weak will be around for a few more years,and only the strongest will survive.

Melvin Joseph

In Reply to Deepak R khemani 6 years ago

Yes, most regulators in our country are here to make things complex. If people can buy all other things through online, they can do it for mutual funds also. For others, who really want the services of an agent, there is nothing wrong in having an inbuilt load of 1-2% to compensate the agents. Regulators and policy makers have to try to involve custmers bulk participation in MF rather than killing the industry.


6 years ago

Unnecessarily SEBI is proposing to bring some additional rules and regulations for the betterment of investors.But the truth is that all these complicated rules will not make Mutual Fund Industry to grow.Today our stock market is suffering because of the FIIs who are selling stocks like anything.They are only making money and Indian investors are remaining at lurch seeing that they are investing and others are taking profit out of that.It is a matter of regret that SEBI have never emphasised on the point that investors require advice from certified Advisers.SEBI should come out with advertisement saying that "Mutual Fund products are specialised schemes for investment and all should consult Certified Financial Advisers before makeing investment."It should alert investors to check the authenticity of the Financial Advisor before taking advice.


6 years ago

Thank you for bringing an awakening article on SEBI's recent proposal. Investor as well as "agents" should be made aware of the fact that mutual funds are not simple saving instruments like Insurance or Small savings. Equity as well as Dept markets are getting complicated by the hour due to globalisation as well as FII's influence. If Mutual Funds are promoted as specialised products and not as a run-of-the-mill me too products then both the investors as well as advisors would realise the importance of knowing their mutual fund fully. SEBI should not only embark on an intensive awareness campaign through out the year in vernacular in the local media and through popular tv channels. A slogan
like this " MUTUAL FUNDS ARE SPECIAL PRODUCTS. IS YOUR ADVISOR QUALIFIED". The present problem lies in equating the sales of mutual fund with that of Insurance and Savings product where discounting by the agents is the norm than an exception.


6 years ago

When I take an FD from a Bank or private company, Ii do not pay commission. When I buy a fridge or TV I do not pay commission. Why should the investor's money be defrayed in the form of commission, when it is mutual fund? If the advisor does not want to sell mutual fund, let him be. He cannot demand commission. But he should be allowed to charge a fee from his client (the investor) for the services rendered by him. This will allow market mechanism to operate in this hitherto unrestricted field of activity. As long as he does not depend on commission from the fund house, the advisor will not be tempted to sell the wrong products to his investor. The advisors have had a good time till now - it is time they also get their act together and really earn their fees by providing well-researched advice to their clients.



In Reply to B V KRISHNAN 6 years ago

Dear Mr.Krishnan,

Of all the moronic and imbecile messages I have read in Moneylife on the issue of commission, this one would rate right at the top.

Sir, what happens when you put money in a fixed deposit in a bank? You are getting interest. The bank is getting your money to make more money for itself. Have you ever questioned the bank what returns they have earned on the money you have lent them? Today, the rate of interest on FDs is about 9%. What if the banks earn 15% on their investment? Are they going to give you that kind of return? So you know where they are making money? And they dont even tell you about this!!!

The MRP of the fridge, another example you have quoted is made up of Manufacturing cost+ profit to the manufacturer+ duties paid to the government in the form of Excise and octroi and sales tax+ transportation charges+ Shipping agents commission+ Warehouse charges+ Dealers Commission. Going by your argument, imagine a situation, where the truck driver, the wholesale depot owner, the government clerk, the shipping agent and the dealer standing in front of your door asking you for their fee or commission or charge because you believe in paying only the actual cost of the product!!! Is it practical?

Hilarious it sounds, aint it???

Today I went to close on insurance sale to a person in his thirties, who earns an annual salary of of Rs.35 lakhs +. He wanted to put some money in a child insurance plan. We had discussed and debated, in detail, a number of things, over e mail, on phones and personal meetings. I had met him six times to give him all the details he wanted. Comparisons were drawn across companies & across products, premiums of different plans, illustrations ... in short everything was done by me to "earn my fees". Finally, at the time of closing, he says " my friend in Bihar is also an insurance agent and he has promised me that he will pay the first three month's premium on my behalf, I will consider buying the policy from you only if you agree to match that offer".

I will tell you, the premium he was paying was Rs.60,000/-. The commission the insurance company gives on this product is 25%. Which is Rs.15,000/-. And he wants me to pay Rs.15,000 from my pocket to get business from him!!! Doesn't that sound wonderful?? You spend time, you spend money, you take efforts to educate him. And in the end not earn anything???

Now you tell me, what fee can an advisor collect when the mindset of a person, who is educated, earning a very high salary, who has been abroad for the last ten odd years, who stresses that he needs quality service and never misses an opportunity to mention hwo good things were back home in USA, does not go beyond the level of seeking rebate???

If I had told him my fee is Rs,10,000/-, do you think he would have paid it???

Looking forward for your reply


In Reply to Manoja 6 years ago

Mr.Manoja, my comments were about Mutual Funds, not about insurance policies. It would be better if you read the comments carefully before jumping to make wise-cracks.


In Reply to B V KRISHNAN 6 years ago

Agree, your comments are for mutual funds. But here I am talking about the mindset of an individual. When they know someone else is paying our commission/brokerage, they want a cut in it. If it is a case where they have to pay on their own, they never do.

Also, pray enlighten us, what you would do if the whole army of people who play a role in getting a fridge from the manufacturer to your doorstep come and demand their share of money from you??


In Reply to B V KRISHNAN 6 years ago

First and foremost you should understand that no body does business for charity. Let it be a FD or Fridge or TV the cost is inbuilt. Same is the case with all the Financial Products. Every product has a cost of marketing. No one is against meaningful regulations. Why Regulations are brought in a haste is the question
. From your comments I find that the understanding of financial products has not gone to the investor so the priority of the Regulator should be for Investor Education. Which Money Life is doing on a grand scale. Kindly do attend their programs to enrich one's knowledge.


In Reply to Srini 6 years ago

I am not against the financial advisor earning his living. My only objection is to the fund house paying commission. Let him collect his fees from the client. Yes, everything has a cost inbuilt into it. But here the client does not have a choice. He has to pay/bear the commission irrespective of the advisor he chooses to do business with. Advisor has no accountability to the client. This has to change.


In Reply to B V KRISHNAN 6 years ago

The client has all the choices in the world to pick or choose his advisor. If you feel that the advisor has to collect his fee from the client then the same has to happen for all the products. As per your earlier example of FD the fee is adjusted as sales cost. When you buy a Fridge the same is adjusted in the MRP. So when the advisor gives a mutual fund product the cost is adjusted in the overall fee charged to the scheme. I dont know whether you are aware of the expense ratio of mutual funds. In the advanced country like the US there are front load funds. If the investor is very savy he still has the option to go directly to the fund. Accountability is required for everyone, so it is very important for the investor to choose the right advisor. That is all the more reason why the Regulator should implement effective Investor Education programs.

Rajesh Bhatia

6 years ago

I think instead of defining advisor/agent our regulators should focus on educating and imparting knowledge to financial intermediaries, educate and do awareness program for investors. secondly at present there are a lot of regulators which creates disparity in the system .I request finance minister to please think about bringing all the financial intermediaries under one roof and like FPSBINDIA the focus should be on education, ethics, experience. Every intermediary is to be held accountable for what he sells or advice moreover things has to be on black or white. Other wise it will remain a discussion point for our elite class.

Melvin Joseph

6 years ago

First of all, let me clarify that I am not a distributor. But I feel, without any commission, we cannot expect anybody to sell anything, that too a financial product. If insurance industry can pay huge commissions, there is nothing wrong in giving 1% upfront commission and a 0.5% trail commission to the MF distributors.The caution are is switching. There should not be any commission while switching to ensure wrong practices by agents. Another important area is investor education. This industry will survive only, if the retail investors are attracted to it. Now the MF industry is confined only to select cities and very few above middle class people. Why not the regulator initiate meaninful customer education initatives to attract the middle class from all over the country to it. This can even help reduce our dependance on FIIs.I don't recommend a daily customer education series advertisement in Economic Times which only will be read by the above few people.We have to reach out far and wide, where the real India lies. If it is done, the higher volumes will ensure a decent living for an agent even @1% commission,who inturn will work more.
Lot of clarity and field realities are missing among those who are sitting on the Top to take decisions.

tushar chhaya

6 years ago

I don't think selling MFs for a fee is such a bad idea.

IBA likely to submit comments on pre-payment charges by Sept-end: RBI

After receiving comments from the IBA, the RBI will go through it and take a final call on the pre-payment charges on loans taken under floating rates by customers, RBI chief general manager and banking ombudsman (New Delhi) M Rajeshwar Rao informed media persons

New Delhi: The Reserve Bank of India (RBI) today said the Indian Banks' Association (IBA) is expected to submit comments by the end of this month on the proposal to do away with pre-payment charges on home loans, reports PTI.

"IBA is expected to submit comments on pre-payment by the end of this month," RBI chief general manager and banking ombudsman (New Delhi) M Rajeshwar Rao said here.

After receiving the comments, the RBI will go through it and take a final call on the pre-payment charges on loans taken under floating rates by customers, he said.

Earlier this month, the banking ombudsmen conference suggested banks should not impose pre-payment charges on loans with floating rate of interest.

It had said banks may also offer long-term fixed rate housing loans to customers.

The conference said lenders may address their asset liability mismatch (ALM) issues by taking recourse to the Interest Rate Swaps (IRS) market.

"Floating rate loans pass on the interest rate risk from banks, which are much better placed to manage it, to borrowers and, thus, banks only substitute interest rate risk with potential credit risk," the ombudsmen had noted.

The banks will, however, be free to recover or charge appropriate pre-payment penalties in the case of fixed rate loans, it had suggested.

Meanwhile, Mr Rao pointed out that the maximum complaints received from customers were card related.

He said as much as 41% of total complaints by customers are against the public sector banks in the New Delhi region which includes Jammu & Kashmir besides Haryana.

In the region, he said the ombudsman received maximum complaints against State Bank of India followed by ICICI Bank and HDFC Bank.

The total complaints received during 2010-11 stood at 10,508 which is 13% less than in the previous fiscal (12,613).

Most complaints are received from Delhi followed by Haryana.

The Banking Ombudsman Scheme of the RBI deals with any deficiency in the services by the bank and as many as 27 services are part of the scheme.


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