Bhave suggests simpler MF products to cut losses

Sebi Chairman C B Bhave today said the mutual fund industry should come out with simpler products as it has failed to convince investors of the long-term benefits of their products.

"There are some 3,000 financial products flooding the industry and it becomes difficult for the investors to choose which one is cheaper or which would give a good return," Bhave said at a CII event on mutual funds here today.

Bhave said the mutual fund industry should provide better returns, but failed to do so. He was of the opinion that the gap could be filled in by providing simpler products.

The financial institutions fail to communicate the benefits and focuses more on short-term incentives, he said.

"Both the industry and market regulator have to learn what is good for them in the short-term, where the whole focus has gone now, resulting in a huge loss for both industry as well as the capital markets," Bhave said.

The regulator, as well as the industry, needs to tell the investors about how much is real innovation in mutual fund schemes and get the right incentive structure for the financial products, he said.

The stress should be on getting an entire range of simpler products, the market regulator said.

He also suggested that the government needs to check what role the Association of Mutual Funds in India (AMFI) or the Securities and Exchange Board of India (Sebi) have to play in this regard.

"A lot of debate is going around on self regulation and AMFI has been demanding a status of self-regulatory body... so, it can give a policy paper on the same to the Sebi. Sebi can further make a rule that no one would be allowed to have short-term benefit. If we have to grow as an industry, then we should stress on self regulation," Bhave said.

He further asked the AMFI, whether it can make such a policy paper soon.

On entry loads, Bhave said the industry has misunderstood the market regulator's abolition of the entry load for the mutual fund industry in August, 2009.

Sebi's ban on the entry load saw distributors shying away from the industry and opting to sell more lucrative products under the insurance and post office fold, which inflicted serious damage to the long-term prospects of the mutual fund industry.

"The distributor is playing a dual role, as an agent of the industry to sell the schemes and an advisor to the investors. What Sebi had said was that whoever is being serviced has to be the pay master. So, nobody is (being) asked to work for free," he added.