The FM has generously allowed domestic fund companies to solicit foreign money. But SEBI bans mutual funds from offering entry loads to distributors. Will foreign distributors touch Indian schemes?
The finance minister has allowed Indian mutual funds to take a big leap. For 20 years after the Indian markets were opened up to foreign investors, only institutional investors were allowed to invest in India. In this year's Budget speech, the finance minister has allowed the mutual fund industry to solicit foreign retail investors' money. The question is, who will sell the schemes to foreign investors and why?
Remember, in August 2009, the Securities and Exchange Board of India (SEBI) decreed that mutual funds will not pay entry loads to distributors to sell mutual funds. Distributors would enjoy only the trail commission and that too if the customer stays with them. This ban on entry loads was revolutionary. Hardly any country in the world has it. The short-term impact has been disastrous.
Upfront commission or entry load formed an important portion of distributors' revenue. With a ban on upfront commission, distributors have shifted to selling other products like Unit-linked Insurance Plans (ULIPs) and company fixed deposits (FDs). ULIPs are no better than funds unless they are held for a longer period and corporate fixed deposits are unsecured. But the commissions on ULIPs and FDs are extremely attractive, which is why distributors are pushing them.
The question is-will foreign distributors sell Indian mutual funds only for trail commissions? After all, entry loads are a fact of life around the world. In fact, they are quite steep in the US.
Says Motley Fool (a website that provides investing information) , "The day that you buy the mutual fund, you pay a sales fee, usually around 5%, and somewhere between 3% and 8.5%." The question is, if distributors normally charge loads of 3%-8.5%, will they sell Indian funds for free?
Moneylife questioned several heads of fund companies on this issue. All of them were categorical that without sales load or entry load, there was no question of being able to sell Indian schemes-not even through the own network of parent companies (like Templeton and Fidelity).
Ever since the ban on entry load by the market regulator from 1 August 2009, the mutual fund industry has seen a massive outflow of investments. This was all the more galling for the fund industry, because mutual funds normally benefit from inflow of funds when the market is rising. Between March 2009 and July 2009, when the Sensex was up 88%, the fund industry saw an inflow of Rs7,429 crore. For over a year after that, fund companies suffered huge outflows.
Only in the last two months, December 2010 and January 2011, equity mutual funds saw a net inflow of Rs887 and Rs881 crore respectively.
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(1) WITHOUT ENTRY LOAD KIM/ FORMS :- These forms should be kept with AMCs. If any investor feels he/she is the master or he/she does not required any service provided by brokers, so why should he/she pay the brokerage. Any investor who does not need any type of service from intermediate IFA; he/she can personally approach the different AMC offices for all types of free services provided by AMCs.
And (2) KIM/ FORMS WITH ENTRY LOAD:- Forms with entry load should be available with SERVICE PROVIDERS (IFAs/brokers). If a investor required the services provided by broker/IFA then he/she should fill the forms with entry load. And if he does't satisfy with one broker he/she can easily change the broker.
I think this system should appeal to all types of investors, regulator SEBI, all AMCs and my all IFA friends.
This is the only way where the both investors as well as IFAs (the SERVICE PROVIDERS) are protected.
Thanks and Regards,
Surender Singh
Mobile 9814186640
I believe that there should be no entry load for entering a scheme. The existing policies are for the benefit of the investor.
http://articles.economictimes.indiatimes...
I think all these changes are done according to PRE WRITTEN SCRIPT whose writer is either a foreign hand or some lobby which has influence in finance ministry plus SEBI-these are all steps taken to wipe out retail investor from investing during lows and then allow them in high markets-so that they can be LOOTED easily with pre plan-
I have settled in MFCG distribution business after 4-5 months of working and i now feel i did a WISE decision while switching to new business-bcos i understood that IFAs will be slowly wiped by pre planned script.
Yesterday in his keynote address at the seminar on "Changing face of Regulations" Vaidyanathan who heads SEBI investment management dept.including mutual funds said that in the matters of weeks new guidelines for investments in mutual funds by foreign investors will be in place.
Nothing is mentioned about retail participation.
This is latest attempt by SEBI in resorting to distributors bashing.
There is another question of KYC compliance of foreigners. Govt. & SEBI had recently introduced stringent KYC rules in order to check the inflow of black money to be routed through MFs.
Now when there exist too much hue and cry of black moey lying in foreign bank accounts. It is common belief that a considerable amount lying in such foreign bank accounts belong to politicians and other influentials worked on constitutional posts. Govt. is giving time to such accountholders to make some arrangement of their money lying in foreign accounts. It seems that introduction of MF investment by foreigners in the budget speech is a step towards helping such accountholders to bring their money back to India through MF investment.
So there may be least requirement of distributors for marketing in Foreign Countries.
I had already apprehended that entire exercise of SEBI headed by its previous chief, regarding abolishen of entry & introduction of KYC & KYD, introduction of new platform through stock exchanges etc., is to vanish all small IFAs.
Small IFAs can do nothing but Broker's Lobby is very strong and influlence the Government and SEBI. Rules can be changed according to wishes of such lobbies. Govt. had announced the introduction of MF investment by foreigners, through its budget speech. In my view that this is not a subject of budget speech. Budget is only an account of receipts & expenditure. Why the FM had introduced this through his budget speech? I think that my apprehension is true that Govt. & SEBI want to abolish small IFAs & enroute all MF transactions through stock exchanges, steadily.
to pacify to amcs due to set back of entry load ban , goverment have allowed fi investment in MF.one investor may be equivalkent to 1000 retail investors.but in this case thought behind formation of mf industry in vanished .it is very deficult to proove .as our central vigilance commissioner itself is under vigilence of supream court.
The regualtors shall reconsider the provisions of Entry Load and KYC before implementation the provisions of Budget Speech regarding entry of Foreigners for investment in MFs.
May be that will make FII think twice before exiting in droves as they seem to do at the slightest uncertainity in indian market.
So stiff Exit load is not in the interest of MF industry as well as of Distributors.
There is another saying, "In theory there is no difference between theory and practice. In practice, there is." This is attributed to Yogi Berra and Jan L. A. van de Snepscheut