CB Bhave, chairman, Securities and Exchange Board of India (Sebi) said on Wednesday that with the laws governing unit-linked insurance products (Ulips) having changed, the market regulator would abide by them. ?We all operate under the laws as they exist. The law has changed now and so now, we will operate under a new law,? Bhave said at a press conference in Mumbai. Bhave also asked the mutual fund industry to get its incentive structure right to benefit investors and the industry in the long term.
Addressing the inaugural session of the CII Mutual Fund Summit 2010, Bhave observed that the industry was attributing low sales to the lack of incentives for distributors, ever since entry loads on MFs were banned.
?There seems to be some misunderstanding. We never said distributors should work for free. All we said was that investors should decide how much they want to pay for advice. Let them negotiate,? the Sebi chief said. In August last year, Sebi had banned MF entry loads. The industry needed to get its incentive structure right so that it could attract investors, Bhave observed.
Talking about the nearly 3,000 MF schemes available, Bhave took a critical view of new products, questioning the extent of innovation and hinting that many may have been aimed at short-term benefits. ?An investor will have no idea of which scheme is good for him. Whatever is good for mutual funds and distributors in the short term would not be beneficial to investors in the short term,? he said, advising the fund industry to learn from its experience during the financial crisis.
The Sebi chief questioned the rationale of MF industry expressing surprise on the inability of fund houses to convince investors about their products. ?There needs to be a survey to understand what the investor wants. That is the heart of the matter, because till the time the investor feels that the mutual fund industry is doing well, he will not come forward. I think the communication is not going through,? Bhave said.
The regulator also asked the fund industry to approach the concept of financial inclusion with care. Unlike the banking industry which was attempting to bring in lower-income groups into the banking network, Bhave stressed the need for mutual funds to study the risk appetite of smaller investors while trying to increase their reach. ?The industry should look at whether the risk profile of the individual matches the products they are selling,? he said.
While asking the industry to take the initiative to come out with a broader policy paper, the regulator also suggested that the Association of Mutual Fund Industry examine the possibility of it taking on the role of a self regulatory organisation. ?The advantage of self regulation is that you can have your own rules and regulation. If it is done by the regulator, it often becomes complex,? he said.