Mutual fund industry body Amfi?s centralised distribution platform, MF Utility, may finally become a reality by March 2014, but a few fund houses have raised concerns about adopting the new platform.
Under the new system, all fund houses will have to upload client and distributor details on the utility platform and this has raised concerns about data confidentiality among some industry participants. ?There is a possibility that some of this data could be passed on to members who wield significant influence within Amfi,? said a fund house CEO, on condition of anonymity. However, Amfi has maintained that there are enough checks and balances in place to protect sensitive information. ?We will ensure confidentiality of data. It won?t be an issue,? said V Ramesh, deputy CEO, Amfi.
Concerns have also emerged over the proposed contribution of R5 lakh as initial capital for the platform. This may pinch a few of the smaller fund houses, which are already struggling to turn a profit. ?The new platform will unnecessarily add to our costs,? said a fund official. In addition, fund houses will have to shell out money based on the assets they manage and the number of transactions routed through the platform.
The new platform will give a ?direct option? to investors, which will enable them to bypass distributors and invest directly in the MF schemes. Distributors now fear that the direct option, coupled with the ease of transaction on the online platform, could further fuel the migration to direct plans among retail investors and high net worth individuals, leading to a loss of distributor commissions.
Direct plans, which became operational this year and allow investors to bypass distributors and save on commission, contributed about 15% of the industry AUM for the three months ended March 2013, according to data from Amfi. Thus far, the migration to direct plans has largely been confined to institutional investors such as banks, insurance firms and corporates.
Ramesh of Amfi, however, believes that it?s unlikely that most investors will go direct: ?Distributors provide valuable investment advice and service to their clients and investors will continue to bank on them even after the platform becomes operational.? He also pointed out that distributors will be the biggest beneficiary of the platform as they will be able to upload all their transactions on a single platform, thus doing away with the need to manually hand in application forms separately to the registrar & transfer agents. Some market watchers believe that the platform will not help the cause of widening MF penetration in tier-II and tier-III cities and beyond as envisaged by Amfi, given India?s low internet penetration. The MF Utility platform has already run into considerable delays ? Amfi had earlier planned an April 2012 launch and then postponed the date to April 2013.