Q&A: K N Vaidyanathan, Executive Director, Sebi

'Business plans need to be re-engineered'

It’s been a year since the entry loan ban was imposed, do you think the industry is settling down?
We see the industry getting more investor focused. The change to new business model would obviously take time to design, execute and achieve fruitful outcome. The wherewithal exists and I am confident of that.

Has the growth of the industry been impacted?
Various market factors influence investment – not just entry load. Also, it is important to mention that we should not exaggerate the benefit, if any, of entry load. In my view, entry load did more harm than good. It resulted in mis-selling, portfolio churn and made the mutual fund products more short-term oriented. Apart from distributors who made super normal profits, neither the industry nor the investor gained much. These negative factors that hurt true growth have been significantly reduced. The transition phase will be challenging and compel fund houses to exercise their business acumen to win investors and enjoy their franchise. I am encouraged by the work in progress in the industry to that end.

You have introduced stock exchange platform for mutual funds. What are the other measures in store?
Sebi’s perspective on such initiatives is from the stand point of the investors. For example, the stock exchange is used as an efficient order routing system from the investor to the fund house. Contrary to the perception that this is for trading, we are using exchanges as efficient couriers of orders from investors to fund house – via whichever channel the investor uses. We have allowed units to be held in demat accounts.

Simultaneously, we have also enabled the Registrars – Karvy, CAMS and Templeton in-house services – to come together and provide consolidated statements to unit holders.Thus, investors who do not have a demat account would still have a demat type consolidated statement of all his mutual fund investments. There are a few more initiatives which are in various stages of build out. The overall objective is to bring more efficiency to the system and much higher convenience to investors.

Where do you see the industry 5-10 years away?
The building blocks in the re-engineered business plan of the industry should cover:

# Simplicity in products that have the ability to scale

# Promise of performance and good service to retail investors

# Steering the distribution mechanism to ‘right selling’ based on appropriateness and affordability

# Using technology to ensure high quality service delivery

Without getting to the bottom 50 per cent of the country, which is not the target audience for mutual funds, there is still a huge opportunity. The current 3 lakh crore of retail AUM has a large headroom to grow. Obviously, a well-thought business model which is investor-centric and ‘doing everything humanly possible’ execution would give a better probability of success.