SEBI thinks that after
increasing the expense ratio, mutual fund business will get a big boost and
there will be long queues outside mutual fund offices. But, this is unlikely to
happen because most important thing is that majority of people of India want
safety of their fund and fixed interest or income on their investment.
Therefore majority of people invest their surplus money in fixed deposit,
postal schemes or contractual life insurance traditional plans. People are not
yet looking mutual fund schemes as investment option as they are market linked
and returns are not guaranteed. Investors should be educated first about the
risk involved in the schemes and how each scheme can deliver them returns
depending on scheme selected by them. By mere increasing commissions people
will not change their mindset overnight. SEBI should also be aware that after
the entry load is banned a large number of IFAs exited from the distribution
channel.
It is hard fact that
less than 10% of the Indian population invest in equity either directly or
through mutual fund. Majority of the investors have lost their hard earned money
because investing in equity requires a deep knowledge and research which is not
possible for each and every individual unless they are putting their full time
efforts in studying all the parameters which drives the stock market. Forget
about the direct investment, people also have bad experience while investing in
mutual fund schemes. There are hundreds of schemes which are not even able to
perform in line with bench mark, which SEBI has also admitted few months back.
SEBI has also promised to take some actions against these schemes but we have
not seen any activity till date. Increase in commission once again will lead to
pushing of products which gives higher commissions and AMCs have already
increased commissions for fresh investments. This is also reality that
commissions on non performing schemes will go up as well. We may also see new
schemes being launched with higher upfront commissions.
When entry load was
banned SEBI had argued they want to protect the interest of the investors and
let investor pay for the best advice. If the objective is to protect the
interest of investors then what is the point in increasing the charges in
mutual fund schemes. This clear shows that reviving mutual fund industry is
priority even it happens at the cost of investor’s interest. Debt fund investor
will suffer more as the return will reduce further. The major reason, according
to me, why debt funds are not popular is that they are market related and
returns are not guaranteed. The returns normally come in single digit and do
not beat traditional instruments like FDs and Postal schemes. People are not
smart enough to understand the interest rate cycle to take the advantage of
falling interest rate scenario. Further higher charges in the debt mutual fund
will hit badly to investors.
None performing schemes
have thousands of crores of assets under management (AUM) and investor’s interest
needs to be protected. Looking at all these facts SEBI must take immediate
action against the non performing schemes and also penalise them. The need of
the hour is that there should to be written guidelines for the mutual fund
products relating to performance of the scheme compared to its benchmark. If
schemes continuously remain under performer compared to benchmark than the
scheme should not be allowed to continue and even AMC should be penalised by
not allowing them to launch new fund offering in that particular category.
Unless and until investor’s confidence is restored mutual fund industry is
unlikely to revive by mere increasing expense ratio.
