Sebi is not just a regulator, but is also a super business manager. In its wisdom it recently decided against “passporting” of the mutual fund industry.

What is ‘passporting’ did you ask?

Passporting would have allowed Indian funds to be sold abroad – say in other Asian countries without much regulation. Sebi in its wisdom felt that such sales would DRAMATICALLY increase the inflow, impact the USD-Re. rates, create a bubble, and CREATE PANIC when the money moves out. Awesome wisdom, I wonder who had that visionary dream.

The Indian industry too did not want it. They want to ‘penetrate’ the Indian market.

My take?

Well passporting would have allowed other countries to sell their mutual funds in India (remember each one of us can invest US $ 200,000 without much hassle). Now imagine if Vanguard and the others are allowed to sell in India without establishing a full fledged office, will they not swamp us with ETF, world index funds, etc?

We need to do out IPOs first. Foist the Rs. 14000 crore market cap on the Indian public. The valuation will be justified by saying it is only 5% of the AUM….and such shit. Once We, the People have all bought the shares, and the big fat promoters have exited their ‘businesses’, passporting will be allowed. Typically the regulators speak the language of the biggest, smartest, or most manipulative promoters – especially if 3/4 of them have impending IPO.

Who will benefit by Passporting?

You and me. We will get many funds registered in Singapore, Australia…to invest. Surely they will be cheaper than Indian funds. Indian funds are expensive and some blatantly cheat. One of them takes money from you ‘saying we charge only 0.25% asset management charges and then put it in other mutual funds which charge 1.25% over and above this 0.25%. So your total cost is 6x of what they claim. OUR REGULATIONS ALLOW THIS.

Foreign fund houses will be able to access the Indian markets for a smaller fee. Remember Flipkart, Amazon are both owned by foreigners but they access you and me. Ditto for Hdfc bank, Icici bank….and many other banks. Oh yes, we allow FDI in retail, but we make noises to the contrary.

Media – they will get an amazing new set of advertisers. Remember in India one of the ‘rating’ agencies lives of the advertising revenue. So they will benefit. Morningstar, ValueResearch, etc. will benefit with increasing traction.

Sales personnel – more people will be required to sell these funds. So more money will be spent on upgrading the sales force – recruitment, training, rewards and recognition. I will be a beneficiary too – remember I make most of my money by training.

Who will lose by Passporting?

Existing mutual funds. Big time losses. They claim that they have created the SIP habit. They claim that they are the greatest thing that happened to humanity – at least to Indians. Blackrock, Fidelity, Morgan Stanley, Goldman Sachs…the list is endless. All of them could comeback with just one sales office.

Imagine what happens to the IPO plans. Oops sorry the OFS plans.

So if you are a mutual fund agent/ registered adviser, remember the body meant to represent you – AMFI is against passporting. Obviously.

The question to ask is what is good for the airline is it good for the pilots, and more importantly is it good for the customer?

So what is good for the investor, and the sales community will be kept out (postponed by 4 years?) so that the ‘manufacturers’ can sell you expensive products….boss Rs. 12000 crore ka OFS jo karna hai!!

When will passporting be allowed?

I guess in 3 years after 5-10 OFS go through, smoothly. And all those shares (along with life insurance) is nicely sitting in all our portfolios.

Omg BFSI looks like a saint if you see other players doing worse things….

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  1. Hello Subra,

    I am an avid reader of your blog and also a MF investor since past 1.5 years.

    I would request you to suggest if it is advisable to continue SIP of 5K each in Franklin India High Growth (Direct growth), Franklin India Smaller companies fund (Direct growth), SBI Magnum Mid cap (Direct growth) and ICICI Value Discovery (Direct growth) for collecting corpus of 4 crores for retirement which is 22 years away from now or would you suggest some changes.

    I will be greatful for your advise.

    Best Regards,
    Utsav

  2. Hi Utsav,

    It is possible to reach a goal of 4 Cr in 22 years with an amount of 20k per month. Just ensure that you increase your investment by 10-15% every year.

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