The mutual funds industry in India, now under pressure to reinvent its distribution system, is turning towards technology. The ban on the entry load brought in parity among all classes of investors. And asking the distributors to collect commissions from investors as directed by
the market regulator led to the industry seeing very little inflow from new funds, especially equity based funds. On the other hand, the industry has been witnessing redemptions.
This is happening at a time when the markets have nearly doubled (despite the current correction mode) from their lows in March 2009. Now, the fund industry players have started to build online platforms to educate independent financial advisors about mutual fund products, and also provide service and redressals on these platforms. In fact, a common fund platform will be created by the Association of Mutual Funds of India (Amfi) and is slated to be live from March 2010. This is being seen as the biggest development in the industry over the last four decades. The shift from product-based selling, where sales were made depending on the commission offered by the funds?funds were churned on a regular basis by advisors and distributors to gain maximum commission at the behest of the investor?will now move over to investor need-based selling. The platforms are supposed to empower the advisors to bring in this shift.
However, despite this new phenomenon, sceptics reckon that common platform will lack a mass appeal and it will be difficult for advisors in the Tier-I and Tier-II cities to utilise these services because of lower penetration of the Internet. Here, fund houses will have to go beyond technology and match it with real hardcore investor support. Many of the fund houses have already initiated the process and those who provided lip service in the name of investor education will have to seriously re-consider their strategies or face extinction. The regulator has made it abundantly clear that they would not backtrack on this move and would leave no stone unturned to see that the cost of investing for retail investors is reduced.
chirag.madia@expressindia.com