SEBI’s effort to use banks to popularise online platforms unlikely to work
Moneylife Digital Team 04 June 2010

SEBI plans to enlist banks to help boost sales of mutual fund schemes, especially the schemes of mutual funds sponsored by banks. However, this move may not work

The much-hyped online mutual fund platforms on the Bombay Stock Exchange and the National Stock Exchange have mostly turned out to be a no-show. Now, the Securities and Exchange Board of India (SEBI) is making another attempt at boosting the flagging sales of mutual funds by this route. It is trying to rope in banks to give a fillip to the volumes on the online platforms. But this may not work due to a rule by the Reserve Bank of India.

As reported by Moneylife yesterday, the market watchdog has called a high-level meeting with bank-sponsored MFs and their respective retail product heads of the banks. The meeting is expected to be attended by the retail product heads of banks like IDBI Bank, HSBC Bank, Kotak Mahindra Bank, ICICI Bank, HDFC Bank and Axis Bank which also have asset management companies which may be represented by their CEOs. At the meeting, SEBI is likely to pressure banks into selling mutual fund products by a variety of means, including using the exchange platform. All these groups have their own large stock-broking firms.

But the current Reserve Bank of India (RBI) guidelines do not allow banks to set up broker terminals inside their premises. This was confirmed by a source from ICICI Bank. Most importantly, SEBI has no jurisdiction in the banking space and it is unlikely that banks will heed its call without the go-ahead from the regulator, RBI. Therefore, SEBI's attempts at having banks push fund sales through the broker terminal route may turn out to be infructuous.

The SEBI move makes sense on paper. Banks have the widest and deepest distribution network of financial products and if any segment can ensure large nationwide distribution it is the banks. Speaking about the development, a spokesperson from the Indian Banks' Association (IBA) said, "Many banks already have the systems and distribution platforms in place. It will be another business opportunity for the bank. If they find it worthwhile they will do it." Another senior official from IBA said, "As banks have a wider reach SEBI might be planning to use that channel to increase the turnover. Banks already have a system of cross-selling of financial products." But having a network is one thing. Making it work for a particular product is another matter.

By dialling banks' helpline, the market regulator is now signalling that it is ready to explore every avenue to push fund sales after net inflows into equity funds started falling from August 2009 when as part of a series of regulatory changes SEBI banned entry load and upfront commissions. This effectively eliminated the well-entrenched incentive-based distribution system of selling mutual funds. With commissions eradicated, mutual funds have found distributors deserting their products in favour of better revenue-yielding products like Unit-linked Insurance Plans (ULIPs).

When fund sales flagged, SEBI probably felt that it needed to take innovative initiatives to push mutual fund sales. One of its brainwaves was offering a system of buying and selling mutual funds through broker terminals. This resulted in the creation of the Bombay Stock Exchange's (BSE) StAR MF platform and National Stock Exchange's (NSE) NEAT Mutual Fund Service System (MFSS) late last year. This was again a logical move because stockbrokers have a wide network. But there is a fundamental flaw in the idea of getting stockbrokers to sell mutual funds. Brokers make money by getting customers to trade frequently and have little interest in selling mutual funds, the sales of which do not fetch large volumes. Not surprisingly, both platforms have struggled to make any significant inroads, as Moneylife had previously reported. (Read here: http://www.moneylife.in/article/8/3193.html).

Now SEBI has come out with one more trick by getting banks to push mutual fund products especially those of funds belonging to the same group. If the stockbroker network for banks does not work, SEBI will have to get national distributors to try other means to sell funds.

 

Comments
jignesh n vyas
1 decade ago
Sebi is totely faild to incress MF equity investment. This rules demage Small investor. MF is push product. IFA are punished for bluander big disturbutior fo miss salling. Sebi reitroduce up front commision and after see inflow of applacation. jignesh.
Dillip kumar swain
1 decade ago
RBI SHOULD BAN ALL BANKS NOT TO SELL M.F. & L.I.,BECAUSE UNNECCERY BANKS LOOTING INNOCENT CUSTOMERS & EARNIG THE REVENUE BY SELLING THIRD PARTY PRODUCT.BANK FORGET HIS OWN JOB.BECAUSE FOREIGN TRIPS NOT AVAILABLE BY MOBILISATION OF F.D.s OR LOANS.
NOW bankers are purely DASYU RATNAKR,no chance to be MAHARSI BALMIK.SEBI chairman is head of DASYU RATNAKARS. RBI SHOULD NOT ALLOW SEBI TO ENTER HIS ENTITY. MF OR LI IS SELF DRIVEN PRODUCT NOT A DEMAND DRIVEN.
Ranjan D Gupta
1 decade ago
SEBI's attempt to increase sell through Bank related Mutual Funds will result in a poor show.I am surprised to understand that SEBI has no proper knowledge about the environment of investment in India.In India products like Insurance, Mutual Funds.Pension require to be sold, not being bought with enthusiasm.SEBI can draw a clue from the fact that after introduction of "no entry load" on direct investment by investors only 3-4% of the investments came from direct investors.Investors will run to the Bank to take a Fixed Deposit or lined up in a queue in Post office to purchase NSC or Kishan Vikas Patra but not come forward with the same aggresiveness to invest in Mutual Fund.
Banks can request their customers to open Demat account but not force them to do it.
sachin
1 decade ago
rather than reiewing its own decision of august 2009.......

SEBI's action are trying to say everything and everyone else is wrong in mutual fund industry......and only SEBI people is right....

its high time SEBI reviews its own decisions regarding mutual funds rather than trying one trick after another....

MK
1 decade ago
Time and again SEBI forgets the most important point that IN INDIA MUTUALS FUNDS ARE SOLD NOT BOUGHT. MF's are still a push product and not directly sought by the investing community. So the link will continue to be the so called MF Distributors/IFA's. Allow them to function and give them a level playing ground.
Hemant Beniwal
1 decade ago
Do you think these trainees will be AMFI certified?

"ICICI Prudential, for instance, plans to hire 50 trainees to support its existing distribution network. “The bank has a strong branch network and we are trying to leverage on that. We are also looking to hire about 50 people as trainees to work in co-ordination with our existing distribution network,” said Mr Raghav Iyengar, National Head-Sales and Distribution, ICICI Prudential.

Some of the AMCs have also been hiring B-school graduates as interns for marketing their products. “The fund houses have been approaching us and are ready to send their interns to work with us to boost the sale of mutual funds,” said the head of an investment advisory services company in the city."
viresh
1 decade ago
Mr. FM your NPS Lonch last year Please check volume Your NPS account and also check after NO Brokerage what mutual fund selling volume
Paul
1 decade ago
What about the channel partners, there is no record of an transactions done by a channel partner on behalf of an AMC with an investor. Only their commission is blocked till date. But what are the efforts done by the channel partners to collect the application forms and details from investor. How much percentage has been sorted out till date. Any statistics???
rajesh
1 decade ago
Mr.Finance Minister, wake up. See the damage caused by idiotic decisions of SEBI. If the government cannot provide employment to people, let it not ruin thier livelihood. We IFAs are been punished for the blunders committed by Big Distributors of mis-selling and churning. Dont Post Offcies pay upfront ? What is wrong with this method ? Has the Mutual Fund industry not grown substantially from 2001-2009 ?An IFA gives services from investment cheque to redemption cheque. To put back Mutual Fund Investments on track,please REINTRODUCE Upfont Commission and see the sales soaring.
V N Kulkarni
1 decade ago
6 months back mr.bhave was worried about lack of advisory to investor.
Mr.bhave , can you explain what advisory a BOLT operator(90% of them are day trader/speculator) is giving while transacting mutual fund transaction over online platform.
jignesh n vyas
1 decade ago
It is very bad time foy MF industry. If you not given up front commision to advisior . so very difficult to sell Mf. If you tick in form how much commision dicided between agent investor. This is right stap. No body given services to small sip and small applacation. Also on line for Mf advisor.
Manthan
1 decade ago
This is another MOVE which clearly shows that SEBI has lost its mental power-and it is trying to heal stomache pain by a mental disorder pain killer-infact they are not ready to accept their series of failures of mental stability-these intelligent guys who have never dealt with a retail investor are proving them selves as big FOOLS-
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