The Hindu Business Line : Debates still continue on regulating distributors

THE debate on the scope of regulating distributors of mutual funds refuses to end in a whimper, not when the issue has already touched a raw nerve, and definitely not when most people tracking the asset management industry have a strong opinion or two on the subject.

Those opinions, in fact, can be artfully combined to present quite a thesis on a matter that is evidently of interest to fund houses and intermediaries alike. But certainly we do not wish to write a thesis here (wouldn't want to bore you, would we?) and would rather talk about the most important points that emerge.

Not unexpectedly, not many people in the asset management industry want to discuss it publicly, leave alone go on record. And those who are indeed willing to speak out are ready to provide no more than sanitised versions. Evidently, they all hate controversies.

But, first, let us hear what our friend, Mr N.K. Raveendran, has to say about the matter. Before you ask `who is he?', allow us to tell you that he is a financial advisor in Bangalore, one who has recently forayed into consultancy. But more to the point, he has fairly strong views about distributors and practices that some of them follow.

Here's a gist of what he writes: Just like in any other business, 80 per cent of distribution must be done by 20 per cent of the distributors. For them, disclosure norms are practically absent. The result is for all to see - practices that some say are quite detrimental for a sizeable portion of the investing populace.

"The amount of cannibalisation of fixed income investments to equity (funds or otherwise) without proper analysis of customer needs and education of customers, churning of portfolio without adequately addressing the tax implications, without disclosing the implications of loads and last but not least without adequately disclosing their fee/income due to client decisions, is surely short sighted," is Mr Raveendran's considered opinion.

Elsewhere in the world, there is an interesting development. This relates to three US senators who have backed a legislation to help people invest with long-term goals in mind. The GROWTH Act, as it has been named, is aimed at helping MF investors create a more stable retirement by deferring tax on reinvested capital gains.

As ICI, the body representing asset management outfits, has noted, it will prompt "should-be investors to become actual investors over the course of their working lives" and make a difference to their "retirement readiness"

Coming back to India, a few draft offer documents have been sent to SEBI for approval. These include those sent by players like Deutsche MF, ABN Amro MF and Birla Sunlife MF. Also, a number of equity funds have declared dividends, which, some feel, are once again being promoted as opportunities for investors to commit fresh allocations.

"Did you participate fully in the rally in our local equity markets recently? The Sensex, a barometer of the domestic equity markets, has given returns of 49.55 per cent in the last one year. Or are you still waiting for `the right opportunity'?", is a question popped in a smartly-drafted leaflet prepared by a mid-sized fund house even as it refers to a "second dividend within a year of the launch". Additionally, it has also furnished (this time, using a different colour) the record date for the proposed dividend. Get the point?

Even though a large capital expenditure programme has been announced by corporate India, companies have not yet started drawing down on cash from the balance sheet and have been raising capital through the convertible bond route, which reflects a cautious mood

Tata Mutual Fund

Feedback may be sent to nilanjan@thehindu.co.in

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