I personally have little at stake in the mutual fund business, but surely the current mess is likely to stay much longer. 2 products  which are similar in nature having a different kind of sales incentive is a big danger to one being crowded out. Of course other than the regulator everybody knows it.

Khyati of DNA had given an example from Sheena Iyengar’s book – if the same company owned a famous water brand and a famous soft drink brand, it is fairly obvious that their marketing muscle will be behind the soft drink brand assuming it is more profitable.

I do not agree with this example in the mutual fund vs. life insurance case because there are millions of people who cannot be insured. However all of them could be potential mutual fund holders. Also if Mr. Deepak Parekh has sustained losses in the mutual fund industry for so long, he is not just interested in ‘surviving’ – he needs growth. And the life insurance business is also going through hell. There is a painful and quite poorly handled downsizing in the whole industry.

The fact that our regulator has made a mess is a given! And the great people have got international recognition….and here the maharatis are being quoted..have fun..’


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  1. I do not understand why our regulators swing between extremes. In Mutual Fund Industry, prior to August’09, the regulatory structure was such that it encouraged active churning.

    The customer got a raw deal. Lot of IFAs used to tell me how they kept ‘booking profits’ for their customers in each NFO and channelized the money into new NFOs. Result, the average commission earned by intermediaries went up. The average age of an equity asset was low at 13 months.

    There was a need to regulate these people. Due to the large doses of regulation which the industry has been receiving on a weekly or fortnightly basis since August’09, lot of IFAs quit the business.

    I believe there is no need to combine insurance and investments. Insurance is to cover risk. LIC was selling insurance as tax saving products, after year 2001, insurance was pitched as a short term (3 years) investment products.
    I would have seen dozens of people coming and narrating their woes as how they have been looted by ULIP sellers. Since the first 3 year commissions were high, it was pitched as a short term product and policies were allowed to lapse every 3 years and a new one was sold in its place.

    Coming back to mutual funds, when the regulator decided to regulate, they have now made IFAs an extinct species. Instead they could have gone for a different structure like decreasing the upfront commission say to 1%. Considering the fact that the average trail commission is 0.4% to 0.5%, advisors can generate good income as the client wealth grows.

    The advisors need to be financially rewarded. At the same time, it should not come at the cost of robbing the customers.

    No doubt intermediaries committed lot of excesses which cannot be justified. There was need for regulation and not over regulation to the extent that intermediaries are becoming extinct species.

  2. The comment is bigger than the actual post.
    Can’t this be written in one’s own blog?

    “Moderation is always a virtue” – Applies for Comments too.

  3. omg! Can someone pls ask this gentleman Dr Muthu to stop writing such big comments? I happily used to read all the comments in this blog till this guy came in. Now, i need to scroll down so many times that I end up not reading valid comments.
    Or is this the cheapest way of advertising one’s blog?
    Let basic sense prevail amongst such readers to keep the comments short as a saying goes “Keep It Short Stupid!”

  4. Chandru and Musk- I do not need any publicity for my blog. I’ve my own viewers and since I do not host any ads there is no commercial compulsion too. I’m not asking anyone of you to visit my blog. I write because I love to do the same. If Mr.Subra feels that there is no merit in my comments (which at times can be lengthy), he is free not to approve it. After all it is his blog.

  5. Thanks for editing. It still conveys the essence. I’ll also try to be as crisp as possible. For the last couple of months, I’ve been reading your blog on a daily basis and enjoyed the information loaded with scepticism. I want to participate in your blog actively by sharing my feedback. If people think, I’m trying to get publicity for my blog; my request to those people is not to visit my blog. I do not have any commercial compulsion (either soliciting business or by hosting ads). I enjoy sharing knowledge and am contended with a few hundred regular visitors I already have for my blog. I do not want to be a parasite and piggy back on your popularity and promote myself.

  6. Dr Mohammed Ali Khan

    ” Its better to keep things simple.. But no simpler” – Albert Einstein
    I think criticizing Muthu for his long comment is unfair.. There are certain things which can be said only by a long commentary..

  7. Muthu started off here with a fight with Subra and now he seems to have fallen in love with Subra’s blog! Haven’t we all??

    Keep up the good work Subra. We all love your blog and you deserve the MUTHU!! (Muthu meens kiss in Kannada)

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