Technologies has many specialties and liabilities to evolve, nurture and grown up the happy means to deliver utmost simplification in day-to-day life. Indeed the Security Exchange Board of India (SEBI) would have been sensed the similar feelings before executing the online trading platform for Mutual funds with aim to reduce its operational costs and address the issue of pan-Indian penetration.The online Mutual fund trading platform would probably do to the Mutual fund space what dematerialization of shares has done for the traders and investors in the equity market.
It will be an online arrangement where Mutual fund schemes can be transacted through the click of mouse; payment directly debited from the bank account and units purchased or sold will be credited or debited to the investors dematerialized account just like the way the shares are traded today; with similar convenience, redemption order will be accepted at a click of the mouse.
Overall the upcoming online platform which start to perform in new financial year (After March 2010) would provide the investors a consolidated view of all their Mutual fund holdings, apart from that platform will bring in simplicity and cost efficiency for investors and will help industry to expand its reach. An another impact of this move would be visible on achieving the goal of financial inclusion since internet as a medium has revolutionary binding over the awareness level; so many frills will be left out for the investors and friendly transaction with many new economy sized Mutual fund products would fuelled incentive for their participation.
Some apprehension regarding the inevitability of demat account for being in transaction have also sorted out as this new portal is not restricted to demat account holders alone; indeed no-frills approach of online trading would increase the transaction and transparency that further fuelled competition and price war between brokerage which eventually would led to highly competitive commissions.
Anyhow some confusion persists on the role of brokers and Independent Financial Advisors(IFA’s) who hitherto have been playing very crucial role in mobilizing around sixty percent of the financial investments in Indian Mutual fund businesses through their channels of recommendations. New platform will be linked to the demat account of the shareholder and the commission payable on every transaction shall be mutually determined between investor and their respective brokers, who will have to be a Depository Participant (DP).
Depository Participants are now present in more than thousand of Indian cities albeit they are hardly in touch to look after the future and just role of small brokers and IFA’S; so it would be better to let brokers manage Mutual fund online trading platforms, as separate infrastructure will defeat the purpose.
Likewise giving artificial support to small Mutual fund agents is hardly compatible in middle to long term perspective as competitive regime is required to infuse constructive morale of these small agents instead to compel them to survive on complementary bucks.
In the wake of SEBI’s move to scraping the entry load, small agents and distributors are facing outright erosion of their identity besides they left with very few options as Insurance sector has introduced D.Swaroop commission meanwhile, which are equally adverse to these middlemen’s. Presently only one lakh AMFI certified agents are in the field with comparison of twenty five lakh insurance agents, so there can be visualize a deep mismatch between demand and supply of effective financial councilors.
So, the present change in the landscape of Mutual fund businesses needs at least a relooking on the plights of consultancy complication since financial awareness level in our country is strikingly lower than counterparts in western and other advanced economies.
It’s worthwhile to note here that despite very high resilience of their economy, western financial regulators still trust and conferred better commission to these financial consultants; even before the scrapping of entry loads in India, there was margin of around four percent of brokerage from western economies. My concern here is not to imitate the western model but to cite the huge potential loss of employment in the wake of new regulatory changes in India…we definitely must go through the all intricacies of pros and cons of its potential outcomes.
Nevertheless, I heartily admire this new technological innovation because its effectiveness lies in many implicit and explicit forms as we have seen previously in the case of Banking and Telecommunication sector in last few years in our country.
Technology both at individual and collective level plays very formative role in preparing the humane psyche to adjust with high end targets; being a very resilient and swiftly emerging economy, Indian economy is indeed ready to upfront with such large scale innovation to achieve the goal of impressive financial literacy as well as financial inclusion. Looking through the technological experiments in past, we can be sanguine about its meticulous performance at Mutual fund arena and further becoming a source for such other innovation in the domains of Indian financial sector.
Atul Kumar Thakur
November29th2009, New Delhi
atul_mdb@rediffmail.com
Showing posts with label AMFI. Show all posts
Showing posts with label AMFI. Show all posts
Sunday, November 29, 2009
Wednesday, November 11, 2009
Dooming Provisions before Indian Mutual Fund /Insurance Industry
Financial reform generally intends for a turnaround story with some fresh provisions although these provisions left different implications for diversely segmented components of industry.
A closer view on modus operandai of Mutual fund/ Insurance industry reveals the segmented interest of its components vis-à-vis the recently introduced regulatory provisions which try to demystify the role of intermediaries by simply cutting their edge of incentives from core of business.
Some fortnight back Security Exchange Board of India (SEBI) came out with a move to end the entry load regime in the pretext of investors welfare albeit that initiative was from reality since the prevailing nature of Mutual fund industry primarily influenced and shaped through bulk investment instead of petty investment.
So, investors are hardly going to benefited as they still have to bear the alternative charges that substituted in further course like, trail fees and entry load etc. In such scenario, the huge distribution network including of Independent Financial Advisors (IFAs) have caught in demure backdrop as their hitherto role are not going to proceed in future time, but this fallout is unlikely to be an universal quotient as the Asset Management Company (AMC) being the third pillar of Mutual fund businesses will surely avail the huge margin in current regulatory framework.
However, for the time being it’s seems daunting for AMC to cope with the emerging consequences from unconventional shifting of distribution pattern; so some temporary arrangement have been made although that is not suffice for raising the morale of persons involved in Mutual fond distribution.
Whatever would be the future shift on these matters; at least it’s an arch reality that again the interests of labour forces especially of unorganized sector have been compromised in the name of reforms.
By following same bandwagon for Insurance sector, meanwhile government have appointed a panel on investor protection and awareness under the Chairmanship of PFRDA Chairman D Swarup whose recommendations till now struggling for a consensus for investment advisors and agents selling financial products to usher them in changed regulatory framework. The apparent mandate of D Swarup committee is to synchronize the level playing field for investment advisors who hitherto have been championing for the great growth stories of Insurance businesses in India.
Proposal to remove commission on products such as ULIPS and allow investors to negotiate fees is acutely dampening for lakhs of advisors and their conventional bond (of employer-employees) with Insurance companies. Other plan to set up Financial Well Being Board of India (Finweb), an agency to write rules on the common minimum standards for sellers of financial products, and supervise a Self Regulatory Organization (SRO) of agents and financial advisors.
The mandate for Finweb seems exhaustive as every financial advisors needs to be registered with it; apart from that, establishment of an SRO on the line of ICAI is another move that creates complexities since advisors already have SROs to look after their businesses.
Regulatory changes are indeed essential but it needs to structured in proper sense and complete canopisation of all components plights; financial sector reform is inevitable but it’s implementation would required due diligence to cover all the core quarters.
It’s again a coincidence that marginal forces (Intermediaries) are being victimized from this new regulatory ruling that’s not at par with peoples expectations. Government must ensure the regulatory changes with following the proper care of mass welfare otherwise it would start to visualize as artificial attire with feeble original appeal.
Indeed economic activities without employment generation are nothing but futility especially when the claim of transparency stands lofty high.
Atul Kumar Thakur
November10th2009, New Delhi
atul_mdb@rediffmail.com
A closer view on modus operandai of Mutual fund/ Insurance industry reveals the segmented interest of its components vis-à-vis the recently introduced regulatory provisions which try to demystify the role of intermediaries by simply cutting their edge of incentives from core of business.
Some fortnight back Security Exchange Board of India (SEBI) came out with a move to end the entry load regime in the pretext of investors welfare albeit that initiative was from reality since the prevailing nature of Mutual fund industry primarily influenced and shaped through bulk investment instead of petty investment.
So, investors are hardly going to benefited as they still have to bear the alternative charges that substituted in further course like, trail fees and entry load etc. In such scenario, the huge distribution network including of Independent Financial Advisors (IFAs) have caught in demure backdrop as their hitherto role are not going to proceed in future time, but this fallout is unlikely to be an universal quotient as the Asset Management Company (AMC) being the third pillar of Mutual fund businesses will surely avail the huge margin in current regulatory framework.
However, for the time being it’s seems daunting for AMC to cope with the emerging consequences from unconventional shifting of distribution pattern; so some temporary arrangement have been made although that is not suffice for raising the morale of persons involved in Mutual fond distribution.
Whatever would be the future shift on these matters; at least it’s an arch reality that again the interests of labour forces especially of unorganized sector have been compromised in the name of reforms.
By following same bandwagon for Insurance sector, meanwhile government have appointed a panel on investor protection and awareness under the Chairmanship of PFRDA Chairman D Swarup whose recommendations till now struggling for a consensus for investment advisors and agents selling financial products to usher them in changed regulatory framework. The apparent mandate of D Swarup committee is to synchronize the level playing field for investment advisors who hitherto have been championing for the great growth stories of Insurance businesses in India.
Proposal to remove commission on products such as ULIPS and allow investors to negotiate fees is acutely dampening for lakhs of advisors and their conventional bond (of employer-employees) with Insurance companies. Other plan to set up Financial Well Being Board of India (Finweb), an agency to write rules on the common minimum standards for sellers of financial products, and supervise a Self Regulatory Organization (SRO) of agents and financial advisors.
The mandate for Finweb seems exhaustive as every financial advisors needs to be registered with it; apart from that, establishment of an SRO on the line of ICAI is another move that creates complexities since advisors already have SROs to look after their businesses.
Regulatory changes are indeed essential but it needs to structured in proper sense and complete canopisation of all components plights; financial sector reform is inevitable but it’s implementation would required due diligence to cover all the core quarters.
It’s again a coincidence that marginal forces (Intermediaries) are being victimized from this new regulatory ruling that’s not at par with peoples expectations. Government must ensure the regulatory changes with following the proper care of mass welfare otherwise it would start to visualize as artificial attire with feeble original appeal.
Indeed economic activities without employment generation are nothing but futility especially when the claim of transparency stands lofty high.
Atul Kumar Thakur
November10th2009, New Delhi
atul_mdb@rediffmail.com
Monday, August 17, 2009
Bumpy Quivering In Indian Mutual Fund Industry
As on July end, the Indian Mutual fund industry manages an asset base of RS 6, 86,946 crore which seems quite impressive in first impression but an in-depth introspection reveals this performances as below of actual potential of presently existing thirty six fund houses. It’s not less surprising that top five Mutual funds houses accounting for over fifty present of the total asset base, so there is huge scopes persist for entry of new players in Mutual fund industry.
According to a recent report of The Economic Times, twenty six funds waiting for approval of business before SEBI (Security and Exchange Board of India); expected potential for more players foraying into the Mutual fund space may lead this industry for stronger consolidation.Mutual fund industry despite having an existence of fifteen years has yet to secure its position as a formidable player in the domain of financial services.
Now the going away of entry load will leave greater obstacles before industry players in attracting the investors. Scrapping entry loads has apparently put Mutual funds at a disadvantage vis-à-vis viable products like ULIPS at the distribution end. Before August 1st, Mutual funds were charging an entry load of 2-2.5% and paying a commission of around 3% to their distributors that mean fund houses had to burn around the cost of 50 to 100 basis point. Such proportion of cost for Asset Management Company was quite low which now they wouldn’t longer afford in the wake of new SEBI ruling.
Even though withering of entry load by SEBI is logical for the sake of investor’s interest as previously availing with fixed nature of commission hardly compelled distributors and Independent Financial Advisors for better consultancy to investors. In absence of adequate information generally investors couldn’t secure there intended benefits from investment.
Now the Mutual fund distribution set to become more demand based rather than sales push, so the time is ripe for investors to be more careful as distributors might push other products such as ULIPS more at least in short term. Indeed the new ruling will lead market towards stiff competitive regime in which the investor will have greater voice although that would require a better financial literacy scenario which at present is quite unsatisfactory in India.
On the other end new SEBI ruling will adversely affect the Mutual fund industry as the overall distribution network is going to face severe challenges; risk has arises of small distributors losing their business and large distributors getting consolidated. Even before the implantation of new ruling Mutual fund industry lacked the distribution network to cover the entire country in a meaningful manner; some plans are in the air for establishing the grand distribution and trading platforms.
Such materialization would of course mitigate the long pending sluggishness of proper distribution network but that must not oust the IFA’s role; they must have to co-exist for further deliberation.In the new set of condition it would be quite imperative to have a triangular interface amidst the Mutual fund , investors and distributors with a consensus based settlement of commission and various other impetus; certainly it would be require disclosure norms more tightened and transparent. There must be a definite set of rules that apply equally to similar products irrespective of seller’s identity.
Apart from the challenges of new directives from SEBI, existences of some non-serious players in the business are equally posing serious concern over the maximization of its reach in financial market.
It seems quite astonishing after passing through the facts regarding very low requirements (Rs 10 crore) to start a Mutual fund unlike the Banking or Insurance business. Despite such hassle free monetary norms; leaders in Mutual fund couldn’t visualize the need for its pan Indian presence like the counterpart’s Bank and Insurance. Presently majority of Mutual funds business comes from corporate (around 70%); here the Mutual funds business urgently needed for some stringent regulatory mandate like rural penetration of business like the counterparts in financial services.
As per a survey of Value research ( An independent research and analysis institution), the industry’s present penetration is estimated at 4.5% as against 10-15% of Insurance business; there are around 3 million agents for Insurance products and just 80,000 distributors for Mutual funds. Indeed both have their own strength and weakness of business but at the moment Mutual fund industry required a tectonic shift in their products distribution in enhanced innovation and co-operation with Banks and Insurance sector.
Mutual fund industry by remodeling many products can leverage upon Insurance’s distribution networks since both are ‘push’ products. Structural changes in selling practices and better offers of reward in distribution network would be a crucial impetus in sustaining and rising of falling esteems in this business.
Today Mutual fund industry is standing at crossroads where it has to cope with many swiftly approaching challenges including a very consistent stiff competition from Insurance industry. Insurance businesses are in win-win situation in comparison of Mutual funds as they availing the traditional edge of being a tool of tax saving besides having a wide network of its distribution channels lead this industry to every threshold in both the urban and rural spaces in equal manners.
To gain an actual breakthrough, potential think tanks of Mutual fund sector should reassess their ongoing business model in terms of targeted breakthrough and further marched towards the comprehensive diversification. Diversification's in the sense, that it would reduce any adverse exposure from a specific sector and would mitigate other invisible travesty.Probably this lesson is most rational after suffering a chronic, meltdown of international financial system which not only raises question on the confined treatment of financial planning but also showed the solution in a diversified and transparent way of business behavior.
Indian market has a huge potential for the growth of Mutual fund business but it would require first to decipher the codes of investor’s expectation from the products. More and more adaptation with the Indian condition would harness the success story; fewer amounts of frills along with the greater amount of ethics and trust would be matched with the genuine plight of this growing sector.
Atul Kumar Thakur
17th August2009, New Delhi
atul_mdb@rediffmail.com
According to a recent report of The Economic Times, twenty six funds waiting for approval of business before SEBI (Security and Exchange Board of India); expected potential for more players foraying into the Mutual fund space may lead this industry for stronger consolidation.Mutual fund industry despite having an existence of fifteen years has yet to secure its position as a formidable player in the domain of financial services.
Now the going away of entry load will leave greater obstacles before industry players in attracting the investors. Scrapping entry loads has apparently put Mutual funds at a disadvantage vis-à-vis viable products like ULIPS at the distribution end. Before August 1st, Mutual funds were charging an entry load of 2-2.5% and paying a commission of around 3% to their distributors that mean fund houses had to burn around the cost of 50 to 100 basis point. Such proportion of cost for Asset Management Company was quite low which now they wouldn’t longer afford in the wake of new SEBI ruling.
Even though withering of entry load by SEBI is logical for the sake of investor’s interest as previously availing with fixed nature of commission hardly compelled distributors and Independent Financial Advisors for better consultancy to investors. In absence of adequate information generally investors couldn’t secure there intended benefits from investment.
Now the Mutual fund distribution set to become more demand based rather than sales push, so the time is ripe for investors to be more careful as distributors might push other products such as ULIPS more at least in short term. Indeed the new ruling will lead market towards stiff competitive regime in which the investor will have greater voice although that would require a better financial literacy scenario which at present is quite unsatisfactory in India.
On the other end new SEBI ruling will adversely affect the Mutual fund industry as the overall distribution network is going to face severe challenges; risk has arises of small distributors losing their business and large distributors getting consolidated. Even before the implantation of new ruling Mutual fund industry lacked the distribution network to cover the entire country in a meaningful manner; some plans are in the air for establishing the grand distribution and trading platforms.
Such materialization would of course mitigate the long pending sluggishness of proper distribution network but that must not oust the IFA’s role; they must have to co-exist for further deliberation.In the new set of condition it would be quite imperative to have a triangular interface amidst the Mutual fund , investors and distributors with a consensus based settlement of commission and various other impetus; certainly it would be require disclosure norms more tightened and transparent. There must be a definite set of rules that apply equally to similar products irrespective of seller’s identity.
Apart from the challenges of new directives from SEBI, existences of some non-serious players in the business are equally posing serious concern over the maximization of its reach in financial market.
It seems quite astonishing after passing through the facts regarding very low requirements (Rs 10 crore) to start a Mutual fund unlike the Banking or Insurance business. Despite such hassle free monetary norms; leaders in Mutual fund couldn’t visualize the need for its pan Indian presence like the counterpart’s Bank and Insurance. Presently majority of Mutual funds business comes from corporate (around 70%); here the Mutual funds business urgently needed for some stringent regulatory mandate like rural penetration of business like the counterparts in financial services.
As per a survey of Value research ( An independent research and analysis institution), the industry’s present penetration is estimated at 4.5% as against 10-15% of Insurance business; there are around 3 million agents for Insurance products and just 80,000 distributors for Mutual funds. Indeed both have their own strength and weakness of business but at the moment Mutual fund industry required a tectonic shift in their products distribution in enhanced innovation and co-operation with Banks and Insurance sector.
Mutual fund industry by remodeling many products can leverage upon Insurance’s distribution networks since both are ‘push’ products. Structural changes in selling practices and better offers of reward in distribution network would be a crucial impetus in sustaining and rising of falling esteems in this business.
Today Mutual fund industry is standing at crossroads where it has to cope with many swiftly approaching challenges including a very consistent stiff competition from Insurance industry. Insurance businesses are in win-win situation in comparison of Mutual funds as they availing the traditional edge of being a tool of tax saving besides having a wide network of its distribution channels lead this industry to every threshold in both the urban and rural spaces in equal manners.
To gain an actual breakthrough, potential think tanks of Mutual fund sector should reassess their ongoing business model in terms of targeted breakthrough and further marched towards the comprehensive diversification. Diversification's in the sense, that it would reduce any adverse exposure from a specific sector and would mitigate other invisible travesty.Probably this lesson is most rational after suffering a chronic, meltdown of international financial system which not only raises question on the confined treatment of financial planning but also showed the solution in a diversified and transparent way of business behavior.
Indian market has a huge potential for the growth of Mutual fund business but it would require first to decipher the codes of investor’s expectation from the products. More and more adaptation with the Indian condition would harness the success story; fewer amounts of frills along with the greater amount of ethics and trust would be matched with the genuine plight of this growing sector.
Atul Kumar Thakur
17th August2009, New Delhi
atul_mdb@rediffmail.com
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