Citizens' Issues
New KYD norms: Why are we being treated like criminals, cry out fund distributors

The know-your-distributor norms introduced by SEBI are making distributors see red; some feel that the mandatory biometric verification is stretching things a bit too far

At a time when the assets under management (AUM) of mutual fund companies are dwindling rapidly, market regulator Securities and Exchange Board of India's (SEBI) tough stand on in-person verification of distributors may just tighten the noose around the struggling mutual fund industry. The new know-your-distributor (KYD) requirements have not gone down too well with some distributors, who question the extent of verification as demanded by SEBI.

The KYD requirements have been introduced by the Association of Mutual Funds in India (AMFI) under SEBI's diktat. It is mandatory to comply with the KYD procedure (with effect from 1 September 2010) before applying for fresh ARN Registration/ARN Renewal. Existing ARN holders are required to comply with KYD norms by the end of February 2011, failing which payment of commission will be suspended till ARN holders comply with KYD requirements.

The requirement of biometric verification seems to have irked the sensibilities of distributors the most. They find the requirement for biometric verification rather excessive and invasive of their privacy. One such distributor told Moneylife, "It is an insult to the integrity of a person who is in this field for more than 20 years and doing his job with the utmost sincerity. It is quite disgusting to learn that after all these years you have been treated like a criminal."

Why the distributors are complaining is because they feel singled out as a threat to security. While they are aware that the step has been taken as a counter against a few ARN holders who have misguided investors for their own benefit, they question why other unscrupulous entities that are known to defraud investors are not given the same treatment by regulators.

"Why is there no biometric process for doctors, lawyers, CAs, dentists and other professionals who can do more harm to an individual than an ARN holder? If AMFI and SEBI think that there are cheats in financial markets then why are the stock brokers not compelled to have this biometric process?" asked a distributor. He added, "If the distributor is required to undergo this insulting process then why not the fund manager who has an opportunity to play mischief with investors' money? The ARN holder can only misguide the client but cannot play mischief with investors' funds, whereas the fund manager has an opportunity to do monkey business with investors' funds. Then why is there no biometric process for fund managers?"

The entire procedure of verification is also quite lengthy and cumbersome. Distributors are required to visit the nearest Point of Service (POS) with duly completed KYD application, self-attested photocopies of relevant documents and two self-attested (passport size) colour photographs. They are then required to produce, in person, the original documents for over-the-counter verification at the time of submission of their applications along with self-attested photocopies of the same. The biometric process is to be completed at the POS, at the time of submission of applications for registration or renewal of ARN along with the KYD application form. Distributors will then obtain the acknowledgement from the POS confirming completion of KYD process. Existing ARN holders are required to send a photocopy of the acknowledgement to the AMCs/RTAs confirming KYD completion.

While most distributors are agreeable to the concept of KYD, they have frowned upon the call for biometric verification. Earlier, Ramesh Bhatt, an advisor, told Moneylife, "People who wish to do business in a straightforward way will not hesitate to give KYC details. The biometric issue needs to be reconsidered." Another planner had quipped, "Investor education is still lacking. I don't know how biometric (checking) will curb the intention of mis-selling. I am not averse to KYD but they should come up with simple and practical solutions."
 

User

COMMENTS

Sanju Rao

4 months ago

How many days for Kyd process to get a Arn number

Sanju Rao

4 months ago

How many days for Kyd process to get a Arn number

Praveen Dubey

6 years ago

My father is ARN holder doing business with last 20 year now his aged is 82.
I along with my father go to CAMS indore with all document and KYD application but biometric test is not ok. CAMS employee said that due to old age biometric is not done. I am Computer professional i was complaining that there is some problem in your USB device but they not accepted and my father KYD is not completed We were gone for that only from 700 KM
Any substitute for biometric ??????

R Varadarajan

6 years ago

Sebi wants to drive away the Individual Distributors, in preference to the Corporates, for the simple reason that only such corporate membership would strengthen the hands of Sebi. Since Sebi has lost out miserably and since FM is keen to encourage the Insurance Companies ( for ULIPS ), the reduction and removal of the individual MF Distributors is the only way to ease out the efforts of the Insurance agents with the support of the companies ( they are big players making huge commissions unlike the paltry commissions of MF agents )

MOHAN DHOTE

6 years ago

i want to know status of my KYD Application ,which submited at CAMS,NAGPUR ,before 10 days.I want it's ACKNOWLEDGEMENT COPY by mail soon.thanx

Keshav B Bhat

7 years ago

Dear all,
Today I went to CAMS fort office in mumbai for submitting KYD applicatin and finishing the formalities. it took more than one and half hour to come out even though only two people were before me who were already in process. They wok fro 10.30 to 12.30 and 3.30 to 5.30 Can you imagin how long it will take to all IFAs to complete the KYD? The process is simple veryfying the PAN card, address proof, ARN card Bank account and finger print and making the entries and issuing the acknowledgement. The acknowledment says it isunder prevention of money laundering act. I wonder how any MF distributor can commit money laundering as all the dealings are done by cheques issued by the investors and the cheques are made in the name of FUNDS and no third party cheques are allowed.
Regards,
Keshav B Bhat

girish prasad

7 years ago

WHATEVER WE ARE DOING IS TERMED AS BARKING BY MR. VAIDYANATHAN IN ECONOMICS TIMES OF TUESDAY ISSUE. AS PER MR VAIDYANATHAN WHO IS ON 2ND POSION IN SEBI ALL THE DISTRIBUTORS ARE DOGS WHO ARE OPPOSING THIS BAN?
DONT EXPECT ANY JUSTICE FROM SUCH TYPE OF ILL MINDED PEOPLE.
MR BHATT LIKE PEOPLE WHO ARE NEW HEAD OF AMFI ALSO SURRENDERED ON FRONT OF HIM

jignesh n vyas

7 years ago

Mr Dilip i am not agree to implemen cfp for mf investment because small investor not pay any amt to agent . Indian investor not reday chang his miend. First ben commission to all insurance product.AMC directly collect chq from investore.Mr. dilip all investore invest in pick market. This is indian investor miend set.

REPLY

KESHAV B BHAT

In Reply to jignesh n vyas 7 years ago

Dear Sir,
This shows the mentality of the people like u who are only greedy and think of your pain is only everything. The injustice is done by SEBI and AMFI by baning entry load and telling the IFAs and distributors to collect commission from the investors seperately, for which we have to fight but why do u ask insurance product commissions to be banned. If insurance products commission is banned, the injustice done to IFAs will be over? When i started as IFA i used to meet so many IFAs who were passing the part or full commission to their to get the bussiness and I used to tell them why are u indulging in such bussiness and their answer was in bussiness we have to do everything and so what if I loose fround end commission, still i will be getting trial commiision. Today I hope such people realise their mistake and the whole IFA comunity is suffering because of their acts. In any product the distributors commission has to be included in the price of the product, if not the proct can not be marketed economically and for long, wether it is in INDIA or any country in the world.
Regards,
Keshav B bhat

dilip kumar

7 years ago

I am respecting to this KYD system & also respecting to AMFI & SEBI thinking. It is right way for futurar planning. But why suffer only ARN holder. Major missailing to insurance company & insurance agant. It is require to change whole system.
It is must to implement CFP modal ih every investment.

REPLY

Amit

In Reply to dilip kumar 7 years ago

I somewhat agree with Mr.Jignesh N Vyas.

B V Vijaya

7 years ago

In my response to article New KYD norms: Why are we being treated like criminals, cry out fund distributors there is a mistake which goes negative way because of typographical error. The element be read as MIPs’ are supposed to have 20% equity such that the fund will have better stability compared to either equity OR so called balanced funds & shall give reasonable growth over a period. B V Vijaya 6th Oct 2010

Anil

7 years ago

When on 28th Sept I took all the relevant papers for KYD to CAMS I was told that the work on KYD hasn't yet started. I learnt that it needs to be done with before 1st Oct. 2010. What is the reality?

B V Vijaya

7 years ago

Dear Mr. Roopsingh 30th Sept 10 at 9:10 pm Many people think of pension plan with equity / equity M Funds investments. It should be a combination of Large cap equity fund along with some investments in Balanced funds preferably with lower equity content OR Franklin Templeton Pension Plan OR UTI’s Retirement Benefit Plan [ which are balanced funds in their nature ] & a small investment in Income funds. With increasing are alternate year the portfolio should be balanced OR reagmented. The whole kitty should be made either a MIP which has a small equity content to fight inflation OR convert to an income fund with a supporting 5 to 8% amt in large cap fund which has a good resilience [stability ] to capital market swing. From the income fund make STP such that the investor gets a fixed income like salary. Every 3 years shift some proceeds of equity fund to income fund to beat inflation. A simple programme could be made in excel sheet for this. NPS does this with a combination of equity & debt funds. Publications of Value research On Line will help you in this regard

About market ups & down of Japan & other countries. This has happened in those countries. Indian markets & regulations are far better than that of those countries. No doubt there may be some loop holes etc. as happened during Harshad Mehta & Parekhs regimes. Norms of RBI has been appreciated by US Pres.Obama & has said

B V Vijaya

7 years ago

Most of the time the responses about M Fund business are about the commissions. There is much more than this in the field which has not been attempted to solve OR rationalize in the industry. Some of them are mentioned below.

• Service Tax. Whether the advisor is crossing the limit of 8 lks or present 10 lks all AMC’s deduct the service tax & only balance is paid to advisor. Instead of this all AMC’s can deposit the so collected service tax to AMFI under individual ARN and as and when the advisor crosses the limit the same could be remitted to excise dept. For all those who are below the threshold limit the same could be refunded to individuals by AMFI.

• In case of death claims each AMC has its own norms.

• For change of address as well for Bank mandate each AMC has its own norms.

• For signature verification/updation, there is no proper common format with AMC’s

• Rationalisation of Application forms & SOA’s is not done. Lot of space is wasted in the format. AMC’s send a letter mentioning the valuation of investment which reaches the investor after months of the valuation date. This has to be received by the investor within 10 days of printing.

• Balanced funds which are supposed to have equity content of 40% & near by have more than 70 to 75% which is against the ethics & has been made to gain the Capital gains Tax advantage.

• MIPs’ are supposed to have 20% equity such that the fund will not have much stability & to reasonable growth over a period.

• Self declaration to AMC’s every financial year. This is a matter of past but AMFI could have done as explained here. Instead of submitting the self declaration to all the AMC’s it could be submitted to AMFI where in any AMC can find out the status of the advisor.


The question rises that what has been done by AMFI which is supposed to monitor these & similar matters. Otherwise investors will think that AMFI is another toothless paper tiger.

I request the distributor family should rise to the cause & get things rationalized.

REPLY

Keshav B Bhat

In Reply to B V Vijaya 7 years ago

Dear sir,
Everything you wrote can be followed up and solved provided the IFAs are able to servive and continue in the bussiness. Ofcouse few people are boasting that they charge to the clients but do they give the statistics of their client base, what way they are charging to the clients, how many clients accept their terms and pay after getting their advise.
It is eassy to say to say clients has to pay for advise but the people who work on the feild know the reality. Further if the industry has to servive it has to have +ve growth in mobilisation of funds and retuns but today inspite of having a good returns there is only -ve growth on mobilisation on equity funds. If a few people are able to charge to their clients and suceed in this feild the industry can not servive ,so every IFA has to realise that he or she is doing good is not enough as the industries servival depends on most of the IFAs doing good bussiness.
regards
Keshav B bhat

Roopsingh

In Reply to B V Vijaya 7 years ago

you have raised very good points which must be addressed-but to whom?no one is ready to listen to IFAs who are crushed by dictatorial attitude of SEBI and AMFI is just a body of some big AMCs who look for their self interest-who is bothered to all these points?if some one who really wants welfare of MF industry gets to work for MF industry-he will surely consider points which are important-you have missed one important point of online trading platform for IFAs excusively for ARN holders-which should be made available if AMFI wants to reduce costs for IFAs and reduce investors expanses-present model consumes lot of time and paper work and conveyance expanses of MF IFAs-

B V Vijaya BE CIS

In Reply to Roopsingh 7 years ago

Dear Mr. Roopsingh I have personally talked on these matters & on open forum for advisors to Mr. A P Kurian, Chairman AMFI. About Pension Plan thru M Funds he told me it is a very tough matter. Today you have NPS with two options which are very good conceptually. I was doing this my humble way. There are certain points which are pragmatic & left to individual. I also gave him a model SOA which was answering for inclusion of units accumulated each year in SIP, mentioning clearly the dividends earned & paid during the course of time in addition to the present information. Lot of space is wasted in the present layout of space & increase in the consumption of stationary which reduces the profit. Each SOA costs quite heavily along with courier charges.

Besides I wish that advisors should develop the habbit of reading professional mabazines & study the individual investments.

You can call on me at 98452 50844

Roopsingh

In Reply to B V Vijaya BE CIS 7 years ago

Dear B V VIjayaji-thanks for replying-in my personal view Pension plan thru MF schemes can be good option-but equity schemes are always riskier in longer term and they can never be relied-Japan's NIkkie index which was 40000 3 decades ago is hardly 9000 now-because of basic changes in economy-so we can never bet that our markets will be good for next 30 yrs-we cant be sure even for next 10 yrs-so i think fixed interest plans must be included in any pension related plan-my contact no is-08866381360

Amit

In Reply to B V Vijaya 7 years ago

Please shed some more light on service tax. You have written about 8/10lks. Is that amount mobilized in a financial year ? Or amount of brokerage received by the distributor?

B V Vijaya BE CIS

In Reply to Amit 7 years ago

Dear Amith It is the brokerage one gets accounted here. Call me on 9845280844 for any more information

B V Vijaya

In Reply to B V Vijaya BE CIS 7 years ago

My Mbl No. is 98452 50844 There was a typographycal error in my previous reply. Sorry for the mistake

Roopsingh

7 years ago

Yes friends-Mr U K Sinha was one of person who was very enthusiast about DIRECT and ONLINE business and he tried to promote them aggressively-he accepted the idea of ONLINE TRADING from exchanges willingly-but after few months he realised that all these Techniques wont work and IFA were essential for MF business-so he changed his voice towards IFAs support-same is case with HDFC AMC which were pioneers of all this newer techniques of sidelining IFAs-their roles were exposed-but after 3 years of continuous bleeding of AUM they have realised ground realities that without mediator(IFAs) their business cannot run-so now all are cursing SEBI with equal volume-but AMCs are equally blamable for all these happenings-and their role was always suspicious-but i am sure they have realised ground realities and would not go against IFAs now-because every possible act has been trialed at IFAs and now nothing worst can happen.

Amit

7 years ago

Is anybody here renewed his/her ARN ? Now we have to go through a refresher course from NSE by paying Rs.1500. Then with that certificate we have to approach AMFI for ARN renewal, by paying Rs.2500. So total cost is Rs.4000. AMFI is fleecing us ! I only sell mutual funds and I have no other income. In the last one year I received approximately Rs.80000 as brokerage from various AMCs. None of my clients paid me any consultancy fee. After deducting my expenses and after running my household, how much money is left with me? If I do not renew my ARN, they will not pay me any more ! Now I have to borrow money ! SEBI, AMFI & NSE think we are thieves, cheats and quite wealthy !

Wednesday’s Market Preview: Flat-to-positive start indicated

The Indian market is likely to witness a flat-to-positive start today on supportive global cues. Wall Street settled mixed as the Federal Open Market Committee (FOMC) reiterated its stand to infuse more money, if required, to boost the economy. Markets in Asia were in the green in early trade on assurance from the Fed to boost the sagging economy. The SGX Nifty was up 11 points at 6,026 against its previous close of 6,015.

The market saw some consolidation on Tuesday. While the Sensex and Nifty touched their intraday highs in early trade, profit booking took away all the early gains plunging the indices into the red. The market managed to recover from the lows but range-bound trading resulted in the market closing with marginal gains. Finally the market closed with gains of nearly half a percent. The Sensex ended 95.45 points (0.48%) higher at 20,001, after touching a high of 20,088, last seen in January 2008. The index touched a low of 19,861, intraday. The Nifty settled above the 6,000 mark at 6,009, up 28.60 points (0.48%).

The US market closed mixed on Tuesday as the Federal Open Market Committee (FOMC) reiterated its stand to infuse more money, if required, to boost the economy. However, it kept its overnight interest rates steady at near zero levels. In other news, US housing starts surged in August to their highest level in four months, while permits for future construction rose, indicating the housing market was beginning to stabilise.

The Dow was up 7.41 points (0.07% at 10,761. The S&P was down 2.93 points (0.26%) at 1,139. The Nasdaq was down 6.48 points (0.28%) at 2,349.

Markets in Asia were in the green on assurances from the US Federal Reserve that it would infuse more funds, if required, to boost the sagging economy. Besides, indications that the US housing market was beginning to stabilise also boosted stocks in the region.

The Hang Seng was up 0.11%, KLSE Composite was up 0.03%, Nikkei 225 added 0.03%, Straits Times rose 0.25%, The Chinese, South Korean and Taiwanese markets were closed for local holidays.

India's gross domestic product (GDP) is expected to grow at 9.2% in FY11 on the back of spurt in economic activities, Centre of Monitoring Indian Economy (CMIE) said in its monthly review.

The GDP had grown 7.4% in the preceding year.

The economy think tank has maintained a 9.2% growth projection for FY11 since March 2010. It expects the three broad sectors of the economy (industry, services and agriculture) to improve their performance in FY11.

The industrial sector, including construction is projected to grow by 9.4% in FY11, better than the 9.2% growth in FY10. The services sector is projected to expand by 10%, compared to 8.6% last year led by the growth in trade and transport segment.

User

VA Tech Wabag’ IPO prospects look good

The company has a debt-free status and has completed more than 2,250 projects over the last three decades in more than 19 countries across the world

Issue
Price: Rs1,230 - Rs1,310 per share with a face value of Rs5 per share
No of shares: 36,69,643 equity shares that includes sale of 26,53,383 equity shares by India Advantage Fund 1, Dynamic India Fund 1, Rainbow Fund Trust, GLG Emerging Markets Fund and Passport India investments
Issue size: Rs125 crore plus Rs326 to Rs347crore by offloading 26,53,383 equity shares
Issue duration: 22nd September-27th September
Listing: BSE and NSE
Book running managers: Enam Securities Pvt Ltd and IDFC SSKI Pvt Ltd

Post-listing details
Pre-issue promoter and promoter group holding: 37.45%
Consolidated restated EPS: Rs53.23 (FY10)
P/E ratio: 23.10(lower band) and 24.61(upper band)

Business
Chennai-based multinational firm VA Tech Wabag Ltd is entering the capital market to raise Rs125 crore through a 100% book building issue. The company is engaged in providing turnkey solutions in water treatment to municipal and industrial clients having presence in India, the Middle East, North Africa, Central and Eastern Europe, China and South East Asia.

It provides complete life cycle solutions including conceptualisation, design, engineering, procurement, supply, installation, construction and operations and maintenance (O&M) services. VA Tech Wabag provides engineering, procurement and construction (EPC) and O&M services for sewage treatment, processed and drinking water treatment, effluents treatment, sludge treatment, desalination and reuse for institutional clients like municipal corporations and infrastructure sectors like power, steel and oil & gas companies. As on 31 July 2010, it has executed 113 projects and is currently executing 81 projects. It has R&D centres in Chennai, Vienna (Austria) and Winterthur (Switzerland).
It is constructing a 62.5 million litres per day (MLD) plant at Delawas near Jaipur for which it has O&M contract for 20 years. It has undertaken a turnkey project on a DBO basis with O&M contract of five years to set up a wastewater treatment plant in Tehran for the Tehran Sewerage Company with a capacity of 4,50,000 m3/d. The company has bagged a contract for a sea water reverse osmosis desalination plant with a capacity of 100 MLD in Chennai including an O&M contract for seven years. Besides, it has also completed a 455 MLD water treatment plant at Panjrapur for the Brihanmumbai Municipal Corporation (BMC).

Strengths

  •  It has executed more than 2,250 projects over the last three decades in more than 19 countries across the world.
     
  • The company has completed the Perungudi plant on a design-build-operate (DBO) basis where it constructed a plant with a capacity of 54 MLD and has an O&M contract for a period of 10 years.
     
  • As on 30 June 2010, the company has an order book of Rs1,860 crore.
  • The company mainly concentrates on executing turnkey projects while the civil work is outsourced to contractors, which helps bring scalability and allows it to focus on the core activities like engineering, design and technology. Out of the 113 projects completed by the company, 83 were turnkey projects wherein civil works, construction and erection work was outsourced to third parties.
     
  • The company has a debt-free status. It has net worth of Rs40 crore as of 31 March 2010.
     
  •  Execution risks that typical in project business; ability to execute orders in a timely manner, meeting guaranteed performance requirements and within budgeted costs would be crucial.
     
  •  Technically qualified and experienced management team. Access to know-how/patents held by its subsidiary is also a positive.

Weakness

  •  The company is heavily depended on municipal corporations of various state governments as 88% of its order book as of 30 June 2010 was contributed by municipal clients. There could be delays due to change in the central or state government, changes in policies, changes in budgetary allocation, lack of funds or the lackadaisical approach of the government departments to make quick decisions which could affect the business.
  • It derives a major chunk of its revenues from a limited number of clients. The five clients accounted for 66% of revenue and 82% of the order book in the year ended 31 March 2010.
  • It faces stiff competition in the bidding process from domestic and foreign companies.

Financial Snapshot

  • Net profit- Rs44.05 crore as on 31 March 2010
  • Total income - Rs1,233.76 crore as on 31 March 2010
  • Net cash flow negative at Rs26.17 crore as on 31 March 2010
  • Operating profit -Rs111 crore as on 31 March 2010
  • Cash and cash equivalents - Rs161 crore as on 31 March 2010

Valuations

IVRCL Infrastructure & Projects Ltd, Engineers India Limited, Thermax Ltd, Hindustan Construction, Nagarjuna Constructions and Gammon India have earnings per share (EPS) of Rs2.6, Rs 9.6, Rs20.7, Rs1.4, Rs7.6 and Rs9.8 respectively. They have a P/E of 63.2, 24.6, 32.5, 36.5, 19.2, and 20.8 respectively. The industry composite P/E is 41.2. Based on the FY10 EPS of Rs53.23 the P/E works out to 23.10 at the lower price band and 24.61 at the upper price band.

Objects

  • To fund its working capital requirements at Rs64.50 crore
  •  Construction of a office at Chennai for Rs34.74 crore
  • Implementation of global IT systems for Rs11.05 crore

Analysts' notes on financials
Rating agency ICRA has assigned an 'IPO Grade 4' indicating 'Above Average Fundamentals' to the issue. The grading has been assigned based on Wabag's established position in the water/waste-water treatment project execution business, favourable demand prospects for the business driven by large investments in this sector and its comfortable financial position, characterised by growth in both revenues and profitability.

Concluding notes

Based on the EPS and PE compared to its peers, the issue looks fairly priced. Investors can consider subscribing to this IPO.
 

User

COMMENTS

balramghediya

7 years ago

va tech looks strong at the time of listing after huge subscription of investor.What you are thinking for the listing?

MRBorkar

7 years ago

Over dependence on clients type - muncipalities - local bickerings involved n financial positions of our muncipalities a skip at this stage can be given. Nothing wrong with the co. - Borkar

k a prasanna

7 years ago

The company is demanding a valuation of around 30 times of its FY 10 earnings, which is justified, taking into the account, the MNC status, the segment the company is in and its future prospects. The company offers complete life cycle solutions in water treatment. Good track record in executing large and complex projects. INVEST. FIRST CHOICE IPO.

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