SEBI wants to create a new category of fund sellers: Postal agents, retired teachers, retired government and semi-government officials who will sell units of ‘simple’ and ‘performing’ mutual fund schemes. The concept and the definition of these two terms should rank pretty high in the list of harebrained ideas from regulators
The Securities and Exchange Board of India (SEBI) recently passed a circular that sharply increases charges for mutual fund investors. This by far is the worst we have seen from the market watchdog. Apart from penalising long-term investors (Read: Mutual funds to be expensive from 1st October ) SEBI’s circular also states “A new cadre of distributors, such as postal agents, retired government and semi-government officials (class III and above or equivalent) with a service of at least 10 years, retired teachers with a service of at least 10 years, retired bank officers with a service of at least 10 years, and other similar persons (such as bank correspondents) as may be notified by AMFI/AMC from time to time, shall be allowed to sell units of simple and performing mutual fund schemes.”
Now what is SEBI’s ‘simple’ and ‘performing’ mutual fund schemes? SEBI has helpfully defined it: “diversified equity schemes, fixed maturity plans (FMPs) and index schemes.” If SEBI considers diversified equity schemes as simple, we wonder why SEBI has not included debt income schemes and liquid schemes as well and which are not complex? And FMPs were the main cause of distress for investors and SEBI in the 2008 crash, which wiped out a fund house.
But what is even more intriguing is the second part of the idea. The schemes “should have returns equal to or better than their scheme benchmark returns during each of the last three years.” (our emphasis). This criterion for selecting schemes is not only wrong but investing in certain schemes based on this can be harmful to one’s investment. And what’s worse is that this would be the investments of hard earned money of savers from small towns and cities who would invest on the trusted advice of ‘government’ employees, postal agents, teachers and ‘senior’ bank officers.
Schemes that beat their benchmark in each of the last three years are not necessarily consistent performers. Take for example the scenario in August 2007, had one planned to invest at that time there would have been funds like SBI Magnum Global Fund 94, Reliance Vision and DSP BlackRock India Tiger Fund among the list of schemes that beat their benchmark on each of the last three years. What happened subsequently?
Let’s take the most recent period just for making our point clear.
Here are some more issues that show how foolish SEBI’s idea of ‘performing’ schemes is.
And as long as SEBI allows fund companies to charge 1.5% on index funds, allowing retired teachers to sell index funds to the masses is patently doing severe harm.
Would the retired government officials be able to do their own research and select the top schemes or would they just push the schemes that would earn them higher incentives? Who would be responsible if investors lost their hard-earned money by investing in the wrong scheme? After all, SEBI has only found new ways to bribe mutual funds companies to reach them, not protect their interests with appropriate metrics and making fund houses and sellers accountable.
Bureaucrats who run the regulatory bodies come up ideas that are well-meaning but senseless because of their tendency to bring in value judgements that have little to do with reality. In 1992 when Dr Manmohan Singh declared that foreign funds would be allowed to invest in India, he said only ‘reputed’ institutions would be allowed to invest here. Dr Singh’s value judgement looked ridiculous and even more so with the reputation of Wall Street firms like Goldman Sachs, Merrill Lynch, Citi and Morgan Stanley in tatters after their role in sub-prime crisis of 2007-08 came to light.
We suspect that this breathtakingly silly idea will remain stillborn like many other ivory-tower ideas of regulators. This is simply because it is not possible to implement it and neither will there be any takers for it.
Signalling a major change in its intention to go ahead with key reforms, the government has approved FDI in multi-brand retail and aviation and also gave its nod for disinvestment in four PSUs
In a major decision, the Indian government on Friday approved foreign direct investment (FDI) in multi-brand retail, aviation sector and broadcast services while permitting divestment in four state-run companies including NALCO, MMTC, Hindustan Copper and Oil India. While operationalising the 51% FDI in retail, the Union Government left it to the state governments to allow setting up of such stores.
The decisions are being interpreted as a major signal from the government of its intention to go ahead with key reforms negating an image of policy paralysis. The decision to allow 51% FDI in retail will be a game-changer for the estimated $590 billion (Rs29.50 lakh crore) retail market dominated by neighbourhood stores.
According to experts, this move would benefit large retailers like Pantaloon, Bharti Retail as well as consumer, who can expect prices to come down by 10-15% in large format stores. Retail giants will play a significant role in improving supply and distribution systems in the country with economies of scale, superior expertise and trained staff, feel the experts.
For single-brand retail, the Cabinet decided that any firm seeking waiver of the mandatory 30 per cent local sourcing norms would have to set up a manufacturing facility in the country, said a Union minister, who asked not to be identified after the cabinet meeting. He said since the implementation of the decision (FDI in multi-brand retail) was put on hold, it had to go to the Cabinet again before going ahead with the decision.
The Cabinet also allowed FDI in aviation by foreign carriers. It also raised the FDI cap on various streams of broadcast services by up to 74%.
Earlier in November last year, the Cabinet decided to remove the 51% cap on FDI in single brand format under which companies in food, lifestyle and sports business run stores. The big retailers were required to bring in minimum investment of $100 million, of which half should be in the back-end infrastructure like cold chains, processing and packaging. These players would have to source at least 30% of manufactured and processed products from small-scale units.
Anticipating the move to allow FDI, retail stocks, including Pantaloon Retail, Provogue India and Koutons Retail, rose 2-8%. Shares of Future Group company Pantaloon Retail jumped 6.9% to settle at Rs157.60, while Provogue India climbed 6.6% to Rs16.04 on the BSE. Among others, Brandhouse Retails soared 8%, Koutons Retail India gained 4.9%, Shoppers Stop (2.8%) and Tata Group retail unit Trent (2.3%) also notched up smart gains.
Similarly, shares of aviation companies like Kingfisher Airlines, SpiceJet and Jet Airways soared up to 8% on the BSE. Kingfisher Airlines settled 7.9% higher at Rs10.81, SpiceJet rose 4.4% to close at Rs34.50 while Jet Airways shares gained 2% to close the day at Rs368.35. The BSE benchmark Sensex ended 443.11 points higher at 18,464.27.
Currently, international retailers are already present in India through their cash and carry model (selling to other retailers and business establishments), where 100% FDI is allowed. Wal-Mart runs its cash and carry business in partnership with Bharti Retail, Tesco runs its cash and carry business in partnership with Trent, owned by the Tata Group.
According to a retail report authored by Boston Consulting Group (BCG) and CII, current size of organized retail in India stands at close to $28 billion or 6%-7% of total retail market. The total retail market is estimated to grow to $1,250 billion by 2020, of which 21% would be organized. With added capital investments from key overseas players, the sector would have the potential to significantly impact the Indian economy, the report said.
The Supreme Court also questioned as why the names of politicians and their relatives have cropped up among the alleged illegal allotees of coal blocks in which the policy of "competitive bidding" formulated by the government in 2004 was not followed