Here is a fictitious conversation between an asset-manager and an asset manager’s regulator.

Asset Management Association: Good Morning, Mrs. Regulator.

R: Good Morning, please take a seat.

AMA: Sir, our business is not profitable at all, we need some help.

Regulator: Oh yes, the Sarkar was also telling me that we need to help you.

AMA: that is very kind of them sir. May I enumerate our woes?

R: Sure.

AMA: Sir we have downgraded our travels from ‘J’ class to Y class. Some of our back-sides do not fit into that cattle class seats, and OMG the food there is terrible.

R: Sure, sure.

AMA: we have also down graded our stay from 5* Deluxe to 5* and it is really inconvenient.We have also shifted to cheaper location for our HO and even the shifting cost us a lot of money. We really need some help sir.

R: How is the Distributor?

AMA: Sir the bigger distributor is doing reasonably well, the small fellow is doing well in some cases.

R: What can we do? My hands are tied.

AMA: Sir bring back the load…

R: No. No. We removed it saying ‘It is good for the investor’ we cannot bring it back.

AMA: Sir, but there is no level playing field with the life insurance companies. They are paying 40% commission, we are paying 0.40%. It is not fair.

R: are you talking about being fair on you, the distributor or the customer?

A: On us sir. If we did not collect assets, how can we charge fees? So we need the distributor badly.

R: What happens if we increase the management charges say to 5%? that will be fine, right?

A: Yes sir, but my head of ops says ALL OUR actively managed funds will under-perform the index funds.

R: I do not see that as an issue. Nobody is worried about performance, as I see it.

A: Yes sir, but still if we increase by 3% it will be ok…maybe 4…let me check with the others

R: How will it affect the debt funds?

A: Sir NONE of our debt funds can ever beat PPF….so we need to get the govt to reduce the interest rates on PPF…is it possible?

R: No that is NOT within my purview

A: Sir we also need to get the Fin Min to continue the ELSS for Rs. 100,000  – preferably Rs. 300,000 under the IT act…

R: No that is not within my purview either. Shit I am feeling powerless.

A: Sir, I am the lobbyist, you are the regulator…

R: You forgot? the Regulator speaks in the voice of the strongest player…and I know the strongest player very well..I have even lived there for some time.

AMA: sir we can ask the unit holder to bear the amc charges, the service charges, the courier charges, etc. So if we can tabulate all the service tax and charge that to the unit holder it will come to about 4.5%…and we will look fair.

R: Other than Subramoney, Anniruddh, Balarkrishna,…and a few others will somebody notice?

A: No sir. They will not. Even if they do, they will not talk about it.

R: are u sure?

A: yes sir. This is what happened when a group of ‘Men Only’ army found a woman among them. All the men kept quiet.

R: ha ha ha…i liked the analogy

R: so it can be 2.5% + 0.25% + all taxes?

AMA: yes sir that will be about 3%…that too with increasing service tax at least the principle can be laid down that all gov taxes should be passed on.

R: what about your Income tax?

AMA: good idea sir. After all it is for the unit holder that we earn profits! We will do it after a few years.

R: anything else that I can do for you?

AMA: No sir.

R: will you send me an excel sheet on AMC profitability improvement ?

AMA: Sir, I would sir, but this office leaks like the roof of a poor man’s hut in Mumbai rains…- and you know the press..

R: yes, yes, better not…

AMA: Any worries can be laid to rest sir. We are launching 22 debt IPOs so that we can buy all the infra bonds that the psu companies want to raise.

R: ha ha…in fact I need to go. I believe the President of India wanted to meet me…he surely knows the role of the regulator…



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  1. I was not well and caught up with last few days postings day.

    You have used 8% returns and 3% expense ratio in illustration. Obviously the returns would look poorer if expense ratio is taken as 40% of the returns.

    In Mutual Fund Insight’s current issue, the illustration is given for 15% returns over a 10 year period for an investment of Rs.1 lakh. The return at current expense ratio would be Rs.3.38 lakh and with the proposed expense ration would be Rs.3.22 lakhs. Difference of 4.7% and not 40% as mentioned above.

    Everyone including you have been saying that SEBI has killed mutual fund industry as there is no incentive for some one to sell MF. When I wrote a comment earlier, why not 1% commission is enough for the distributors, you mentioned that in Mumbai some one with even Rs.75 crore corpus cannot survive @ 1% commission.

    No move is perfect and anything can be criticized. So what is the solution then? Only by trail and error, an optimum balance for clients, fund houses and distributors can be reached.

  2. sorry Muthu take it as 15% return and 2.90% amc it WILL LOOK WORSE.

    if u have not seen fungibiity, i can assure you the MEDIA will NOT. Fungibility is worse than increasing the amc charges.

    best of luck…

  3. love to see 15% pre expense return in a mf without a super high standard deviation. Anyway Innumeracy helps. Also this is a fictitious talk between an amc and his regulator. Nothing to do with India. Generic.

  4. Out of 41 equity oriented funds in existence for the last 10 years, only 4 have given less than 15% annualized returns. The remaining 37 have given over 15% returns.

    The 4 funds belong to LIC & JM. Even there the returns are superior to FDs & PPF!

    Increase in expense ratio would affect investors but how fungibility within the expense ratio structure would impact them? Kindly explain.

    (Data source: Valueresearch, as on 30th June’12).

  5. Gentlemen,

    Please help me to clear one doubt. Could one of the possible fallout’s of this fungibility clause be that, the days of MF scheme’s having expense ratio lesser than the upper limit allowed could come to an end?

  6. Hello Subra Sir,

    This is very disturbing, you have been a fantastic sane voice in all this consumerist bullshit happening around.
    is it possible to start a campaign where we can send postcards to SEBI about customers non satisfaction with this rule….

    You think this will help?

    surprisingly there is no consumer association for mutual funds which is very odd.

  7. There are still options like Quantum AMC, a direct-to-investor AMC, that have wonderfully performing funds like Quantum Long Term Equity Fund, that have given great returns over 5 years or more and are rated 5-star for very long time. And, their AMC charges (Expense Ratio) has been 1.5% for years now and recently it has gone down to 1.25% as there is no distributor dependency and need to pay hefty trail commission y-on-y.

  8. my argument is basic. Why replace a simple charge based on the effort of bringing money – to a far more complicated charge? and why should the amc decide how much to pass on to the distributor?

    distributors saying “now we hope amcs pay us more” is like like a driver telling the maid “I know that boss’s salary went up in April, so our incomes will go up”.

    Opaqueness, be damned.

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