Market regulator, Securities and Exchange Board of India (Sebi), is slowly tightening its regulation of mutual fund distributors. The first step was taken when Sebi banned entry load on any mutual fund product last year and then came out with a host of norms to make the business more transparent. Now, Sebi is working on new norms that would further curb distributors mis-selling financial products, especially to retail investors. It?s time Sebi focused on the distribution practices among banks and national distributors, which constitute the largest chunk of the overall distribution mix in the country today.
Mutual fund distributors say that investors associate banks with ?safety? and this has helped their distribution business. But their relationship managers are anything but investors? friends. They are given hefty targets and incentivised to sell new funds, and those who successfully meet the targets are given lucrative incentives. But that?s where Sebi?s role comes into play to ensure that mutual fund products are bought by investors with full knowledge and zero misrepresentation.
Analysts say there are ample cases where relationship managers of banks have had sold their products and later vanished into thin air. Also, frequent change of relationship managers prove counter-productive and there is no one to service a customer over a longer period of time.
Sebi must ensure that there is a complete disclosure of fees earned by the banks on selling different mutual fund schemes. Even better, if there is a historical documentation (say, one year ) of banks recommendations displayed along with fees earned. This will give investors a quick peep into how funds are sold. Then, risk adjusted mutual fund ratings?there are many institutions that do this rating?should be made the usual norm while displaying performance to customers. Disclosures need to be put in bold in investment documents, preferably like the health warning on cigarette packs, about sponsor of a mutual fund.
?muthukumar.k@expressindia.com