Is the growth in mutual fund investments on the verge of a stagnation?

Manuj Joshi 15th February 2018

In the existing market structure, the mutual funds market has a plethora of people engaged in doing essentially the same work which is to bring more investors into the market. These people may call themselves Mutual Fund Distributors, Independent Financial Advisors, Financial Consultants or Investment Advisors. They not only sell the mutual funds to their clients but also advise them over which fund to buy. Their earnings come from two routes. One, charging a fee from their clients and two, commission received from mutual fund houses which can come in as either upfront commissions or trail commissions.

An upfront commission is paid on the sale of the mutual fund and trail commission is paid according to the period the customer chooses to hold the mutual fund.

This structure of commissions brings in anelement of bias in the advice given by the distributors.They usually push the clients for a fund that provides them with better upfront commissions.Once the investor finds that the fund is not performing as well as they expected, distributors convince them to invest in another fund. Since the trail commissions are usually lower than the upfront commissions offered, the distributors earn more from short term investments than from a long-term investment by their client.

SEBI has proposed a regulation to separate the mutual fund distributors from advisors. The aim of the regulator is to remove the conflict of interest which found its place due to the commission structure of the advisors/distributors.

Now with the new regulations the advisors will charge a fee for their advisory services without considering what commissions are being offered. They will not be allowed to sell any funds to the client. The MFDs (Mutual Fund Distributors) will be restricted to only describing what the mutual fund offers and provide execution services/selling mutual funds.

This reduces the amount of commissions generated by the MFDs. MFDs have acted as the major player for bringing investments to the fund houses from B15 cities. If the commissions of distributors are taken away then the investments by B15 cities and to an extent even from T15 cities will fall. Some of the mutual fund distributors will leave their occupation and look for other jobs. Others will find loopholes in the new regulations and continue earning the same while sacrificing their fiduciary responsibility. And still others would surrender to the stricter regulation and settle for lesser earnings.

A survey by InterMedia- Financial Inclusion Insights Survey, Wave 3 (2015) points out that majority of Indian investors take advice from their spouse, family, relatives, friends and neighbours. Table 1 below shows, in decreasing order the percentage vis a vis the people who are consulted for financial advice. Not even 5% of the people approach advisors. People in India are not yet ready or willing to pay for financial advisory services. It is evident that segregating the activity of selling and advising will only leave people bereft of any advice. If SEBI wishes to improve the current regulatory system, it needs to include the behaviour and psychology of people, that dominates their actions while investing.

Table 1

What or who do you depend the most for a financial advice?
Spouse 40.5%
Myself only 30.4%
Friends, family, and neighbours 25.1%
Bank/Financial institution 1.4%
Informal savings/lending groups 0.2%
Radio 0.1%
TV 0.1%
Religious Institutes 0.1%
Insurance Company 0.1%
Other 2.3%

Source: Financial Inclusion Insights Survey, Wave 3 (2015)

Instead of going forward with the current proposal, SEBI could pass a regulation to equalise the upfront commissions offered by all fund houses. This would remove the root cause of conflict of interest between the distributor and the client. The mutual fund distributor would not get additional benefit from promoting any particular scheme over the other. Instead the distributor will most likely put money of the client into a fund which would generate the best returns and thus the client would like to hold it for long. This would increase the earnings of distributors through perpetual trail commissions. Investors would save on exit load as they won’t have to change funds every few months and would also see a rise in their incomes by investing in the best funds in the first place. The market would also become transparent and devoid of bias.

Manuj Joshi, Research Associate, Pahle India Foundation.

5 comments

lynesia vernesa

DOCTOR MAGGI. YOU ARE GOD SENT TO HELP PEOPLE LIFE, I PRAY YOU WILL NOT DIE BEFORE YOUR TIME This is real take it serious, who will believe that a herb can cure herpes, i never believe that this will work, i have spend a lot getting drugs from the hospital to keep me healthy, it got to a time that i was waiting for is death to come because i was broke, one day i hard about this great man called Dr MAGGI who is well know for Herpes, HIV, and Cancer cure, i decided to email him I didn't believe him that much, I just wanted to give him a try, he replied my mail and Needed some Information about me, then I sent them to him, he prepared a herbal medicine (CURE) and sent it through Online Courier Service for delivery, he gave my details to the Courier Office. they told me that 3-5 days I will receive the package and after receiving it, i took the medicine as prescribed by him at the end of the one week, he told me to go to the hospital for a check up, and i went, surprisingly after the test the doctor confirm me Herpes simplex virus negative, i thought it was a joke, i went to other hospital and was also negative, thank you for saving my life, I promise I will always testify of your good works. if you are herpes simplex virus patient, OR you are be helping by someone before i will like to advice you to give this man a try and see what will happen to your life don't worry about the money you have be use contact him and I am sure you will get cured, contact him via: Email: Maggiherbalcenter@gmail.com call+1(662)967-1783 THESE ARE THE THINGS DR MAGGI DOES. HIV, CANCER, ASTHMA, IMPOTENCE, LOW SPERM COUNT, BARENESS/INFERTILITY, I can’t stop talking about this man called Dr MAGGI cause he is a God sent to cure humans from different DISEASES with herbal medications, he cured me of GENITAL HERPES, he will also help you. Contact him today and you will have a testimony…Good luck!

0 reply

LARRY CLEMENT

Dr. Osagie God will continue to bless you more abundantly, for the good works you are doing in peoples life, I will keep on writng and posting testimonies about you on the Internet, I’m John Homles , I was a HIV patient, I saw a blog on how Dr. Osagie cured someone, I contacted him and also got my healing, kindly email him now on (drosagiesolutiontemple@gmail.com OR DROSAGIESOULTIONTEMPLE@YAHOO.COM ) or His Whatsapp number: +2347030465649...thank you my great DR Dr OSAGIE CAN AS WELL CURE THE FOLLOWING DISEASE:- HIV/AIDS HERPES CANCER

0 reply

JONES SHIRLEY

Am here to appreciate Dr MAGGI for using his herbal medicine to cure my Herpes virus. since 3 years now I have been living with this virus and it has been giving me challenges, I was so perplexed cause i have been taking several drugs to be cured but all of my effort was in vain,one morning i was browsing through the internet then i saw several testimonies about Dr. MAGGI curing people from Herpes virus and immediately i contacted Dr. MAGGI on his email: Maggiherbalcenter@gmail.com, i told him about my troubles and he told me that i must be cured, gave me some instructions and which i rightly followed. so he prepared a herbal medicine for me and sent it to me which i used for 2 weeks and everything was like a dream to me and my Herpes virus was totally gone, why don't you contact him today and be free from your diseases because he is very good and honest Doctor. contact him via email; Maggiherbalcenter@gmail.com or call him on +1(662)967-1783.

0 reply

VIVIAN

I'm here to testify about what DR. MAGGI did for me. I have been suffering from (GENITAL HERPES VIRUS) disease for the past 3 years and had constant pain and inching, especially in my private part. During the first year, I had faith in God that i would be cured someday.This disease started circulating all over my body and I have been taking treatment from my doctor, few weeks ago I came across a testimony of Rose Smith on the internet testifying about a Man called DR. MAGGI on how he cured her from 7 years HSV 2. And she also gave the email address of this man, advise anybody to contact him for help on any kind of diseases that he would be of help, so I emailed him telling him about my (HSV 2) he told me not to worry that I was going to be cured!! Well, I never doubted him I have faith he can cure me too,, DR. MAGGI prepared and sent me Healing Oil, Soap, roots and herbs which I took. In the first one week, I started experiencing changes all over me, after four weeks of using his Roots/ Herbs, Oil and Soap, I was totally cured. no more inching , pain on me anymore as DR. MAGGI assured me. After some time I went to my doctor to do another test behold the result came out negative. So friends my advise is if you have such disease or know anyone who suffers from it or any other disease like HPV, HBV, HIV, ALS, HBP, CANCER etc. you can contact DR. MAGGI for help via email} Maggiherbalcenter@gmail.com or call his telephone number +1(662)967-1783 or You can also email me on howardvivian222@gmail.com. I may not reply your mail immediately but at my leisure i will do so, Thanks once again DR. MAGGI for making me a happy woman again.

0 reply

deanfneilsarah

Hello!! I’m indeed very happy for the great help that Dr. okorom rendered to me, I was a herpes patient my husband also was a herpes patient, we saw a blog whereby Dr. okorom cured herpes items, unfailingly we sent him the money he will need in buying the items required, He castes the spell and asked us to go for check-up after three days of casting the spell, Luckily for us we herpes, we (Me and My Husband) decided to contact him which we did, he asked us to buy some tested herpes negative, now I believe all these Testimonies about him on the internet, he is truly a great man, if you want to discuss with me on how he cured us, kindly email me on deanfneilsarah@gmail.com or you can contact the great Herbalist and a spell caster on dr.okoromspellhome@live.com he is a very kind man and helpful

0 reply

Post Comment

The content of this field is kept private and will not be shown publicily

Note: Views expressed in this blog are those of the author.