Sebi and its new rules
Sebi has once again shown its penchant for micro managing. It is amazing how despite its track record of not achieving its stated objectives, Sebi does not give up micro managing.
It is the job of the regulator to make rules and make sure that the rules are adhered to. For example ICC has a job of recognizing countries and say “Australia can play test cricket”. Then it goes on and says…Kenya, Afghanistan,…are all recognized to play test cricket. Great.
Now if ICC gets into the game and starts selecting the team for Australia and Kenya what will happen? Well, Australia will beat Kenya. This has nothing to do with the ICC, but it is just that A has better talent than K. What happens if the regulator tries to control the ticket pricing of all matches and says “Australia vs India will have to priced same as Kenya vs Afghanistan”. Well it will be a little difficult.
It is of course it is the job of the INDUSTRY and the INVESTORS to decide where to invest. So for example Quantum Mutual fund or PPFAS mutual fund decides that they will charge a smaller fee for their funds. Sadly, their budgets may not allow them to go to town about a fund with a lesser fees. The fact that they have lesser fees does not mean that they will get a lot more money. People will still wait to see them perform. When a good fund manager performs well, people do not mind paying a bigger fee.
Everytime every regulator comes up with a new move media licks up and says “fantastic results will be achieved”. I am yet to see any regulator doing something which benefits the small manufacturer or the small investor. Yes removing the up front load was good. Yes reducing the TER was good. However, NOTHING that the regulator did helped increase the size of the market. A slight tweaking of the IAP (Investor Awareness Program) and the Amfi campaign of Mutual fund sahi hai which increased the size of the mutual fund market. A bull run from 2009 to 2018 (and counting) has also helped the market grow. If the regulator wishes to take credit for this, that would be some gutsy thing to do.
How will the industry react? Simple they will make it far more attractive for the IFA to sell PMS than to sell the regular schemes. I do not think it is far away that a mutual fund will sell off all its retail schemes and concentrate on PMS and AIF. Nothing wrong. After all as a mutual fund I should concentrate on company profitability. If the government wants to spread mutual fund awareness among retail it is the job of the government, not that of the mutual fund industry or its investors.
The current caps on expenses etc. will hurt the bigger fund houses a little, but how much time will it take for them to incentivise its sales force to increase the size of the small funds and reduce the size of the big funds? Sebi has already shown them the way – lets see how the industry will react.
Nothing that the regulator has done is going to increase the number of advisers. If the regulator does an agewise analysis of the AUM it will be clear that the big aum is with the OLDER Arn holders. New comers are not coming into the industry and the only sales that happens for the retail is through the banker or through some big IFA umbrella organisations. Not sure whether that itself is a good idea, I do not think the Regulator has too much thought on that.
I am happy to be at the end of my career – and mutual funds play a very small role in my life. If I were asked by a 32 year old boy or girl “should I give up a job in xx bank for a full time career in mutual fund advisory….?”. My answer would be:
Perhaps a guarded yes, but make sure that the parachute is in good condition and you are well trained to use it for an emergency landing. You may need it. As early as 2022.
Pradeep
Subra,
Perhaps you still don’t realise MFs are now 25 lakh crore industry in India. I will put the zeros for you. 25,000,000,000,000 Rs is the AUM managed by Indian MF.
If you calculate 1% expense for this huge AUM it comes to 250,000,000,000 = 25,000 crores.
25,000 crores is huge amount to be paid as expenses.
Times have changed and SEBI is alert to that, but you may be losing it.
Pradeep
Since you took cricket as example, financial powerhouse like India is cheating world cricket just because of their money power. We need an ICC to set rules and ensure India is not overpowering other nations. A 25,000 crore fund charging 1.5% as expense is nonsense. You will probably know that expenses are taken away regardless of their performance. So it should be reasonable.
Gimesh
But a MF is allowed to launch only 1 fund in each category, how can they keep coming up with small funds ?
ajayalmighty
Pradeep must work in a dictatorial role for he has completely missed the whole point of this article as demonstrated by his use of “…fund charging 1.5% as expense is nonsense”, and “…Rs.25,000Cr is a huge amount…”. It is truly laughable to think that SEBI is changing with the times…maybe it might when anybody born before the 1990s ceases to exist. Subra is saying that it is the job of the regulator is to level the playing field and allow water to find its level. It has no business enforcing blunt policies when numerous other market friendly measures might exist.
Deep C
Isn’t its regulator’s failure if they fix prices again and again instead of market to do it automatically, considering the capping of slab wise TER…. instead investor should be aware more by enhancing their knowledge on TER and how to understand these number for their investment. Unaware investor anyways will be redirected to AIF, PMS or ULIP or more unrequired insurance because of this.
Ban on upfront commission seems to be half hearted only as its still open on SIP …. and this is where most of new money is coming in.
Pradeep
ajayalmighty might be thinking he is the almighty God. A stock market regulator’s job is to protect the investors from unruly behaviour of large influential players who are not very ethical if left alone. A classic example is ICICI Pru’s actions in ICICI securities IPO. If the almighty believes fund houses can be allowed to fix their own charges, then we know what the ULIPs do even today due to lack of much action on the part of IRDA.
An investor does not want to invest and pull money every other day like stock trading.
SEBI has allowed smaller funds irrespective of whether its from small or large fund houses to charge higher expenses while reining the large funds overcharging. Let the almighty note that this is level playing field for all fund houses.
Its not exactly SEBI’s duty to bring more investors to the market. That job is done by AMFI, BSE, NSE, etc. But what SEBI does is it ensures investors are not robbed off by costs. SEBI does exactly by changing the commission structure which was similar to endowment plan structure where 35% of your 1st premium was pocketed by the insurance agent.
Trail commission is the way to go with many more people coming into invest and again all fund houses have the same new rules here.
Lastly, almighty will do well to put some facts or own views forward in comments instead of hollow criticism of others.
Pooja R
Mr Subra I did not understand 2 things. How does giving the commission upfront make CHEATING possible? and has Sebi curbed all the mischief by the agents? and what is Mr. Pradeep trying to say?