A day after the Securities and Exchange Board of India (SEBI) issued guidelines abolishing entry load on mutual fund schemes and shifting the industry to an advisory fee regime, the asset management industry's reactions were mixed.
While some feared adverse affect on their business, others were more in tune with regulator’s view.
Sandesh Kirkire, Chief Executive Officer of Kotak Mutual Fund and a member of managing committee of the Association of Mutual Funds in India (AMFI), felt that the regulation makes the investment process too "tedious".
“SEBI guidelines have the potential of disturbing the industry. At a time when the industry is under-penetrated, it is important to keep the process easy to increase penetration,” said Kirkire.
While MFs had no fundamental problem with the SEBI guidelines, requirement of separate cheques for distributor commission worries some. "Why take separate cheques towards payment of commission?" asked a senior official at a leading brokerage firm which also distributes mutual funds.
The industry was taken aback at the SEBI's announcement on Thursday, with most expecting the introduction of a structure in which the fee charged to the investor would have varied according to the product sold.
Most fund houses favour a variable fee structure in which an investor and distributor decide on the commission but payment is made with a single cheque, with the commission deducted by the fund and paid to the disributor.
Ajay Srinivasan, Chief Executive Officer of Birla Financial Services was more amiable to the change. “It is too early to make a stand, but I think this is quite unique as we don’t see this approach anywhere in Asia,” he said.
“Every product has some cost of distribution and somebody has to pay for that. What SEBI is suggesting is that the investor pays for it and we have to wait and see if that works out as planned,” said Srinivasan.