Investors against return of MF loads

Oppose Sebi panel’s mandate to look into transaction costs and single-cheque payment.

The Securities and Exchange Board of India’s (Sebi) recently formed seven-member panel to look into the problems faced by the mutual fund sector and recommend steps for “organised and sustainable growth of the industry” has investors’ associations worried.

Business Standard spoke to 10 investor associations which felt investor-centric reforms should not be rolled back. Another concern is the composition of the panel.
 

NO GOING BACK

• Investors don’t want return of entry loads
• Investors’ associations ask why the new panel is industry-Sebi heavy
• Contend loss of assets due to underperformance, not ban on entry loads
• Say two-cheque system should remain to keep advice and sales functions separate
• Suggest Sebi look at making trustees responsible for fund performance

In a mail to fund houses, the CEO of the Association of Mutual Funds of India (Amfi) and a member of the new panel, H N Sinor, said the panel will look into problems like ‘transaction costs’ and ‘dual cheque system’.

The latter — the separate cheque payment — was introduced to ensure that the fund house does not have control over payment to the distributor/financial advisor. Sebi-registered investor associations across the country, many of them not a part of the recently formed panel, are already questioning this mandate.

The industry has been of the view that instead of allowing the investor to pay through two different cheques — one to the fund house and another to the distributor — there should be a single cheque payment. Investor associations feel this will give them control over the distributor, something that is undesirable.

Investors say a single cheque system is nothing but a back-door entry for entry loads. “The moment the distributor’s commission is bundled with the investment, the AMC gets the power to control the distributor. They are trying to tag the distributor to individual AMCs. That is not right. They should be independent,” said M S Apte of Lokmanya Seva Sangh. According to another investor, Sebi should work to bring the financial advisors under its umbrella. “At present, nobody regulates them.”

ONE-SIDED?
Also, the earlier 14-member mutual fund advisory committee formed in 2008 had people from various walks of life like investor associations, a lawyer, an accountant, two financial journalists and a former Sebi chairman, besides representatives from the industry. Non-industry members constituted a majority.

The new committee formed last week, however, is dominated by members from Sebi and industry. Two members are from Sebi, one from Amfi, there is an MF trustee and two members from industry. Only one person from an investor association has been included in the new committee.

Prakash Shah of the Investor Education and Welfare Association feels reforms have to be taken forward. “If they want to review, they need to look at how to make things simple for investors. Even today, investors do not understand the numerous schemes. Sebi should look at these areas, rather than look at small things such as cheques and forms.”

According to these associations, the outflows faced by fund houses are due to their own poor performance. Apte of Lokmanya Seva Sangh said, “Most schemes have underperformed, that's why people are moving out. It is not because of entry load.”

Virendra Jain, chairman of Delhi-based Midas Touch Investors Association, said Sebi's focus should be on investors getting better service by looking into issues like fund managers being accountable for the performance of funds. Trustees should be responsible for monitoring performance and take corrective measures for underperformance.”

U K Sinha, the new Sebi chairman, recently said the mutual fund committee will explore ways of “incentivising the industry and aiding growth”. He also talked about looking at models around the world and “in other financial products sold in India”.