Retirement
Pension regulator risks repeating SEBI’s blunder in sidelining distributors

The PFRDA is trying to get pension fund managers to push NPS. This makes no sense especially since fund companies are not able to sell even a tried and tested product like equity mutual funds

If the chairman of the pension regulatory body has his way, we may soon witness a repeat of the havoc created by the capital market regulator Securities and Exchange Board of India (SEBI) on the mutual fund industry. Itching to make substantial changes to the struggling New Pension System (NPS), the Pension Fund Regulatory and Development Authority (PFRDA) is mulling redrawing the rules of the game. Yogesh Agarwal, chairperson of PFRDA and formerly IDBI Bank chairman, has said that pension fund managers are the real stakeholders who should push the NPS and not the point of presence service providers (POP-SPs) like banks. Currently, there are 35 POPs and seven fund managers.

In a recent interview published in Mint, Mr Agarwal said, "After I took charge, I called a meeting of pension fund managers (PFMs) to discuss the matter. I feel the stakeholders are fund managers since they manage the investment. I asked them if they can work out a way to push NPS the way it is done with insurance and mutual funds."

On being asked why POPs should not be incentivised to sell NPS, Mr Agarwal said, "POPs are banks and they are not supposed to market. Also, why will they market NPS when they have other lucrative products to push?" In any financial product, be it ULIPs, mutual funds or life insurance, the intermediary is the crucial channel who reaches out to the public. The mutual fund industry has learnt this lesson the hard way. The ramifications of SEBI's ban on entry load last year is clearly visible today, where distributors have been virtually sidelined, leaving the industry in tatters. Since last August, Rs11,500 crore has flown out of mutual funds even as foreign and domestic institutional investors have invested tens of thousands of crores.

In such a scenario, it is unthinkable that the PFRDA is trying to put the onus of selling on fund managers rather than incentivising POPs, who provide the interface between the customers and the product. Essentially, the PFRDA is trying to implement the same broken business model for the pension industry. Worse, PFRDA seems completely unaware of the huge fundamental difference between a pension product and other financial products like mutual funds and insurance. A pension fund company can neither offer any product differentiation nor 'innovate' and bombard investors with a flurry of fanciful products, with matching advertisements as insurance companies and mutual funds can do. It is difficult to comprehend how one can expect the pension fund managers to deliver the results, when they themselves are reeling under the fallout of the various steps taken by the regulators.

Industry experts strongly feel that the PFRDA is taking a wrong turn, saying that by shifting the responsibility of sales on to the fund managers, the PFRDA will dilute the role of these entities and can create a possible conflict of interest.

"The POP is not getting any brokerage. If there is no brokerage then why should even POPs promote this product; they have 30 products to sell today. It should be promoted by the government itself by advertising massively," said a sales head of a private fund house. 

"Pension fund managers should stick to their job of fund management only. If you mix up roles then concentration goes haywire and your priorities take a U-turn. There should be specialised people to do specialised jobs. Pension fund managers are not keen to sell these products because they are getting very low management fee. I don't see how they (pension fund managers) will take this additional burden of pushing NPS. Pension fund managers are very keen on equity, which is a very small portion in NPS. Incentive should be based on performance rather than selling the product. A neutral person should be appointed to sell the products, otherwise all fund managers will claim that they are the best and try to push their products," said a Mumbai based certified financial planner (CFP).

The NPS regulator PFRDA has appointed 35 POPs across India to act as an intermediary between the customers and the Central Record Keeping Agency (CRA), which is the National Securities Depository Ltd (NSDL). The fund management charge of NPS is 0.009%, lowest as compared to any other financial product, anywhere in the world. However, the product has failed to take off in the absence of any incentive.

The NPS Trust, which supervises the funds managed by various pension fund managers (PFMs), evaluates the performance of the fund managers on a quarterly basis. On 1 July 2009, the NPS Trust and PFRDA had entered in to a memorandum of understanding (MoU) which contained the obligations of the NPS Trust. The clause mentioned, "The pension fund managers have been managing the fund schemes independently of other activities and have taken adequate steps to ensure that the interests of the beneficiaries are not compromised."If the above clause if anything to go by, the PFRDA is seemingly jumping one step ahead.

"PFRDA's original structure envisaged creating a 'Chinese Wall' between the fund manager and the source or customer. The Employees' Provident Fund Organisation (EPFO) had called for quotations to manage the money. Some players had quoted a miniscule fee to manage the EPFO corpus and others who quoted higher were totally out of business. There was an initial desire to acquire the market and that too the government pension. There were two logical flaws.

Firstly, the PFRDA repeated the same rate (fund management fee) year after year and secondly it compulsorily applied it to private sector pension players too. It is not viable for private fund managers. PFRDA will not advise investors to choose the right fund manager. That's why you need advisors. POP is merely an operational facilitation," said a senior official from a top fund house, preferring anonymity.

The PFRDA has appointed seven entities including private players like LIC Pension Fund Ltd, SBI Pension Funds Pvt Ltd, UTI Retirement Solutions Ltd, IDFC Pension Fund Management Co Ltd, ICICI Prudential Pension Funds Management Co Ltd, Kotak Mahindra Pension Fund Ltd and Reliance Capital Pension Fund Ltd to the manage the corpus of all Indian citizens. The central government' NPS corpus is managed by three public sector entities like SBI Pension Funds Pvt Ltd, LIC Pension Fund Ltd and UTI Retirement Solutions Ltd. 

User

COMMENTS

Anil D Kale

6 years ago

The govt and PFRDA are indirectly pushing the people who are in need of retirement planning to the so called planners of Insurance industry(as they are the only agents left to sell a financial product, they are the only ones who make money)It seems that Govt of India wants to protect interests of Insurance companies and mainly LIC who provide funds to Govt projects at cheap rates and also bailout Govt by subscribing to PSU IPOs which anyway public is not subscribing to as in case of NMDC.

The common man has to find his way out of all this confusion on his own.

There is no point in expecting Govt to do everything which includes retirement planning as the basic needs of majority of population are not met.

Venkata

6 years ago

Í am surprised to see this kind of article in moneylife. Recently you had given statistics that there is no retail pariticipation in equity market and how skewness in our market depth. In this scenario, what learning are you refering to that Fund House have to learn ?
Retail participation in not there in the equity market and same is reflecting in drop of AUM of Fund house. Let's not link the same to entry-load ban imposed by the SEBI.

Keshav B Bhat

6 years ago

Dear All,

I feel if anyone is really concerned about the retired people or senior citizens (every one is going to be one in their life some day or other unless they die early), they should workout to bring some good annuity product which will give good retuns to these people to support themselves when they have no other source of income.
every one is talking and advocating pension products but they do not realise all these products are of build up face products and in this face any normal financial proct is OK as the annuity products can be purchased by any accumulated funds. The need is to bring annuties with better retuns and to be made tax free to help the older ones.
Regards
Keshav B Bhat

pvmaiya

6 years ago

It seems like a common fascination for Regulators and the Govt.Dept of Disinvestment to pride themselves on how they succeed in beating down the fee of fund managers and other facilitators without realising what they gain is miniscule compared to what they lose by way of sales volume and price[in case of disinvestment]. The basic objective of the schemes get defeated with such narrow mentality of being penny-wise, pound foolish.What they lose is not easily quantifiable and hence these'wise' men get away with after causing early mortality/ attenuation of the very schemes entrusted to their care.

Roopsingh

6 years ago

The only way left for making NPS success is that Mr Pranavda(FM)who is behind this NPS idea and who tried to curtail MF industry by trying to eliminate IFAs should sell it personally -he should make ad films and should ask people to prefer NPS over MF-this is only way left to make success NPS without inclusion of IFAs.

Satej

6 years ago

I think, industry is realizing the fact that w/o Advisors MF can't sell , because it is not possible for All AMC's to reach every single investor in Tier II & tier III cities. Investor who is investing his money in LIC, MF, PPF,NSC,KVP MIS,Post etc by a person from so many years, is the trusted person, and now my request to Regulator is to asked AMC's to trained Distributors as Advisors by conducting trainings, for turn them from Agent to Advisor/Financial Planner and donot avoid them, otherwise Industry will collapse.

ABHYA DIXIT

6 years ago

Just proves that bureaucrats do not understand marketing.== The very reason why PSUs find it tough to compete in the market and need MONOPOLY clutches.

Sapna

6 years ago

Why are the crooked brokers needed at all?

REPLY

Keshav B Bhat

In Reply to Sapna 6 years ago

I am sorry to make the following coments, If you are saying all brokers are crooks just because some of them are crooks, what should you call all wemen are ..... just because some are ..............
Regards,
Keshav B bhat

Roopsingh

In Reply to Sapna 6 years ago

Every service or goods are sold through some mediator in every economic activity-TV ad,news paper ad or personal relation all are just differenr forms of broking-even our "KIRANA shopkeeper" who sells all commodities is a broker-why dont u go to farms and purchase SABZI from farmer or your mobile from factory of Nokia or Samsung-it just shows you dont know what broking means?is it not true that your Sabzi wala sells rotten sabzi to u sometimes claiming it to be fresh?same is investment advisory-all brokers are not good and all brokers are not crooked-Mind it well-

Keshav B Bhat

In Reply to Sapna 6 years ago

Why do u need anybody for anything?, you can do everything yourselves and get all the benifits for yourselves. Ihope this answers your question

jay

In Reply to Sapna 6 years ago

yes no brokers needed. you should buy shares, mutual funds and cumpolsorily bank only though ration shop, the most efficient mode of distribution the world is eagerly awaiting to copy our model

ABHAY DIXIT

In Reply to Sapna 6 years ago

Are all brokers crooked? It is like saying all manufacturers produce low quality products.

rakesh

In Reply to Sapna 6 years ago

brokers dont sell NPS

Almost Rs3,000 crore more flows out of equity mutual funds in August ‘10; 13-month outflow hits a huge Rs14,450 crore

In August 2010, equity investors pulled out a net Rs2,890 crore from equity mutual funds. Fund companies are staring at a bleak future

According to data provided by the Association of Mutual Funds in India (AMFI), equity schemes have witnessed Rs2,890 crore net outflow or redemption in August 2010, continuing the trend from the last several months. In July 2010, Rs3,400 crore went out of equity funds. Equity linked saving schemes (ELSS) too saw Rs127 crore net outflows. Some say that as the markets reached new highs, equity mutual fund investors have been quick to cash in. A majority of the investors who had put their money at the peak of the markets have started pulling out money from equity schemes, say some sources in the fund industry. But this does not explain why there has been continuous outflow of funds over the last 13 months. Coincidentally, market regulator Securities and Exchange Board of India (SEBI) had banned entry loads on new fund sales and then followed it up with a host of measures to 'tone up' the fund industry.

Canara Robeco Mutual Fund launched its Canara Robeco Large Cap+ Fund in August 2010 which mopped up Rs178 crore. Existing equity schemes mopped up Rs4,750 crore in August. Axis Mutual Fund's Axis Triple Advantage Fund, an open-ended balanced fund, collected Rs428 crore through its new fund offer.

"It has been a continuing trend. As the market has been doing well, many mutual funds have actually performed better than the index. Many people invested when the market was at its peak. All those people have not had any return and have seen their principal in the red for almost three years. Now they are getting an opportunity of getting their principal back. So the level of redemption is high.

Secondly, there are alternate avenues like ULIPs, PMS, real estate and structured products that offer higher revenue to distributors. There has been a trend of funds being pulled out of mutual funds into these products," said a sales head of a private mutual fund.

This, however, does not explain why equity funds have suffered redemption in 10 months out of the past 13 months. Fund companies privately curse the changes SEBI has brought about in the last one year in reducing sales incentives while many distributors have gone out of the fund-selling business altogether, suddenly finding the business unviable.

User

COMMENTS

KUMAR

6 years ago

it is not changes brought by SEBI or any other reason except mutual funds are not performing well or their functioning should be investigated. when market is gained more thna double from 8000 to 19000 , mutual funds scheme returns are merely 5-10% only. how come only 5-10% gain when such schemes portfolios are part of same scrips which has gained more than double???

REPLY

Keshav B Bhat

In Reply to KUMAR 6 years ago

This shows that how people talk about the subject they are not familier with. Are you talking about debt funds or Equity Funds.
Whole Equity Based funds are killed by SEBI and the fund sizes are reducing day by day eventhough same funds have given very good returs beating the bench marks. Kindly go through the fund performance reports before writing something please.
Regards,
Keshav B bhat

r

6 years ago

where are these funds going to...?.. now..?
insurance products...?

REPLY

Keshav B Bhat

In Reply to r 6 years ago

company FDs, Bank FDs and ofcorse some wise oparators like LIMOZENE etc

I think Mr Bhave is the most happy prson now as he and his team has achived their GOAL!

Keshav B Bhat

6 years ago

Dear Sir,

When the entry load ban was imposed by SEBI, the AMCs were happy and whenever we raised this question in meetings the answer we used to get is SEBI has got power and we can not do avy thing against their orders or we can not be in their bad books by raising this question. Further the advisory system with people charging for consultation is the future so u people get equipped with CFP qualification etc.
Hope atleast now the people in the industry realise the mistakes and come forward with some practical ways to deal with the situation instead of justyfying their misdeeds.

Regards
Keshav B bhat

manoj k bharat

6 years ago

It was hard luck for small and new investors, who could not get the services of the distributors for applying in mutual funds, as he would not know the basics, regarding which funds to apply, how to apply and where to go to get and submit application. In the process, small and new investor, for whom SEBI was batting immatuirly, was hardest hit in not getting benefitted from the current bull run.

Similarily, it was hard luck for AMC's, which hve to bear the brunt of wrong policies of SEBI, thus resulting in bringing them on the brink of failure in bringing in the culture of equity investments in the country

Government was totally right in keeping ULIP away from SEBI, otherwise it could have ruined that industry as well.

REPLY

Keshav B Bhat

In Reply to manoj k bharat 6 years ago

Dear Sir,
It is not just SEBI to be blamed, even the AMCs thought since they got enough data base of the investors, if the intermediaries are eliminated they will be able to sell the schemes directly.
Further now if a sub broker goes and aproaches any fund house on behalf of any client flately they refuse to help, saying we do not recognise the sub brokers, if you want you can become our broker and we will oblige. But for fund mobilisation they do not see wither the person is aub broker or not even a sub broker/ ARN holder.
As long as this type of attitude remains in the industry no body can do any thing for the small investor or the new investor

regards
Keshav B bhat

Roopsingh Solanki

In Reply to Keshav B Bhat 6 years ago

I agree your point that AMCs are reaping what they sow-they never highlighted the point to SEBI that direct investment should not be allowed-is insurance available directly with deduction of its entry load(agent commission)-IRDA has never supported the idea of direct policy selling with low premium-but our ""wise"'AMC bosses tried for welfare of "poor"investors because brokers were "Looting"investors with 2% huge commission-so no doubt AMC are paying the price for their cunningness with IFAs,they should have opposed SEBI unitedly in all nuisance ideas of SEBI and its boss-but instead they have screwed up whole industry-now with markets reaching highest levels -investors are quiting the markets-thanks to SEBI fatwas-

Keshav B Bhat

6 years ago

it is high-time people start realising the plain truth, No product can be marketed or sold without goeng through marketing process which requires manpower either direct sales force, to who are paid saleries and incentives or intermediaries who are paid commission.
The industry has seen the intermediary comunity is the bestmodel with cost advantage compared to any model.
Regards
Keshav B Bhat

Michael

6 years ago

Well Mr. Bhave, you were trying to clean the rot from the system...

It appears that your efforts are helping clear out the system itself. You might not have any MF industry left to regulate

Cheers!!!

Throwing out the Baby with the Bath water???

REPLY

Hemal

In Reply to Michael 6 years ago

To me the comments here appear to be of MF agents who lost their business.

Anyways, I am a small investor, a typical salaried guy investing for my retirement. I do my own research on MF and apply to schemes on my own.

My question is why should 2% of my investment be reduced at the onset when I don't want any help of the agents. Before this ban on commission even if I do my own study on MF and apply online or by paper, my investment used to lose 2.25% on day one. I am happy now.

Michael

In Reply to Hemal 6 years ago

Friend, If you were doing your "own research" well you would know that there was a DIRECT window for all Mutual Funds with NO ENTRY LOAD and NO COMMISSION payable to anyone many months before SEBI scrapped Entry Load and upfront commissions on all transactions.
Now you will have to be more alert with your "Own research" as if what this articles says continues you may be investing in a fund where many are leaving and that is bound to affect the returns. Happy Investing...

Hemal

In Reply to Michael 6 years ago

I agree with you Michael. Sorry the comment was not directed at you but to the article. I did a mistake of doing a reply. Still a newbie to putting comments on a page:)

I have been availing the DIRECT window.
I am in favor of having both the options open for the investors. 1. A direct window with no entry load and no commission. 2. Or a commission based one, a complete ban is not the right approach.

I am also against pocketing of trailing commissions by the MF when a investors has not availed of any agent.

Five states attract about Rs50 lakh crore investment proposals

New Delhi: Five states, including Gujarat, Maharashtra, Orissa, Andhra Pradesh and Karnataka, attracted about 50% of the total Rs105 lakh crore investment proposals made in 20 states, reports PTI.

"These five states have emerged as the most preferred investment destinations attracting 52.42% of total investment proposals of about Rs105 lakh crore made in 20 states in the past four years," an Associated Chambers of Commerce & Industry (Assocham) study said.

Gujarat received investment proposals worth Rs12 lakh crore, followed by Maharashtra, Orissa, Andhra Pradesh, and Karnataka, Assocham secretary general D S Rawat said in a statement.

Among sectors, which received maximum amount of funds in these states, electricity topped the chart receiving 40.3% investments, followed by services 22.6%, manufacturing 22.1%, real estate 9.9% and mining 2.4%, the study said.

It said that electricity sector got the highest share of investments in states like Uttarakhand, Chhattisgarh, Himachal Pradesh, Madhya Pradesh and Bihar.

States like Kerala, Jammu and Kashmir, Punjab and Maharashtra emphasised more on development of services industry, the study said.

For real estate sector, Haryana was a major destination as it attracted 57.8% of the total investment proposals, it added.

Apart from these five states others in the list included West Bengal, Madhya Pradesh, Haryana, Jharkhand and Himachal Pradesh.

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