Mutual fund load abolished: Action plan!

Mutual fund loads abolished – let us look at how each constituent is likely to react:

Investor: He is supposed to be the biggest beneficiary. Most of them will not know about it. A few handful of people (who had the option even earlier) can go direct. However to the best of my knowledge the reluctance to download the form, print, fill and courier it to the fund house is something they will not do. So some of them will benefit. Others might now buy more unit linked plans and other debt instruments like ppf, pf, etc. So the total amounts invested in mutual funds may actually go down.

Mutual Fund houses: this is a funny game! At any point of time there is some marketing guy’s (or gal’s) ego involved in creating AUM so they will continue to pay 2% as commission in some form or the other. It will either be a straight 2% upfront commission or 1% for all and 2% for the bigger boys or some such form. All mutual fund promoters believe one day some buyer will come and pay 8% of AUM and buy the business they have built.  The worry is one day if UTI or Hdfc Amc gets listed…and at a price less than 3% of EQUITY aum the lid will be blown. It is also possible that some shareholder will get impatient and pull the plug. That day we will all ACCEPT that the king was not wearing clothes.

Mutual Fund Distributors (big): The big daddies like Citibank, Hdfc bank, Icicibank, Standard Chartered bank, State Bank of India, etc. will refocus on life insurance in the immediate short term. They will E-enable their clients to invest in mutual funds through an electronic platform. This will save them servicing costs. Some of them will charge the client (who will sign the one-time fee form!). They will go to fund houses and create new STRUCTURED PRODUCTS with a ‘fee’ model – the fee will be deducted from the clients account directly. This should not be difficult to do. Anyway many banks had brought down the share of mutual fund to 20% of the sales and about 10% of the revenue – so they really will not be hurt much. Apart from this they will charge ‘use of branch space’ ; ‘advertising fee’ – for posters in branches, marketing expenses, …AND any other expense that can be taken directly from the NAV. Frankly these guys are not too concerned. In a worst case scenario they will sell only their own schemes – for Icici, SBI, Kotak – the money stays in the same P&L and B/ Sheet. In case of Hdfc the income on distribution goes to the bank and the amc fee goes to the amc – a sister concern! It is also possible that the banks who are more confident about their relationships will charge a fee – which could be a %age of the sum invested. The question is not whether the customers will pay, but how the banks term it, whether the media writes about it, and how the customers react!

continued… keep reading

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