No commissions on direct investment in mutual funds and due diligence procedures for customer identification, have started impacting mutual fund sales, according to a survey.
The study was conducted in August by IIMS Dataworks. Mutual fund houses disupte the conclusions of the study.
According to the survey, as many as 30 per cent Independent Financial Advisers (IFAs) who sell only mutual funds, of the total 1,500 respondents, believe that there is a significant impact of the ‘KYC’ or “know your customer” requirement.
More than a third believe there is a significant impact on business volume as a result of imposition of no entry load on investments done directly with mutual fund houses.
Mutual fund companies however differ. “I do not think any of these has impacted to that extent and there is only a moderate change in the number of transactions,” said Vikram Kaushal, head, retail sales and distribution, ICICI Prudential AMC.
Others however feel that the impact is a result of the market conditions. “I think lower volumes are a result of the prevailing market conditions,” said Sunil Subramaniam, executive director, sales, Sundaram BNP Paribas AMC.
According to the survey the IFAs are losing on sales because of the no entry load, "Had that been the case that many accounts would have come through direct entry," said Debashish Mohanty, country head, retail, UTI AMC. "Also we are of the opinion that it will have an insignificant impact on the market."
The KYC norms require complete due diligence of the investor. He needs to have a permanent account number (PAN) to be able to invest more than Rs 50,000 in a mutual fund scheme.
But the regulation impacts only those investors who look to invest Rs 50,000 or more in a particular scheme. "This generally is not the case with retail investors," said the marketing head of a leading fund house.
According to Surya Bhatia, a Delhi-based financial planner who says he is not a part of the survey, "There is no bottleneck with regard to the KYC norms because I would ensure that the PAN card is made, but yes there has been a mild impact as a result of the no-entry load."
All mutual fund investments routed through a distributor have to pay commissions of up to 2.25 per cent to the distributor. After the regulator, Securities Exchange Board of India, came with the guideline on no entry load for direct investments, the investor investing directly with the fund house is not liable to pay the commission.
"Investors sometimes ask for pass through to invest with us and so the no entry load impacts," said a financial advisor, who did not wish to be named.