The Hindu Business Line : Financial planners moot no-load mutual funds

FINANCIAL planners are mooting no-load mutual funds to enable investors to choose between funds that have entry or exit loads and those that charge only a small management fee. Currently, no-load options are available only on institutional plans or sometimes for investments made during the initial public offer of the fund.

Financial planners in India are seeking to evolve into `fee-only' practitioners, where their clientele are charged an annual fee for managing their wealth.

"Fee-only advisors can then invest in these no-load funds as the load is usually charged as the `cost of advice' by the distributors of fund houses. Our clients are already being advised by us, there is no need to pay a brokerage again for each investment," said Mr Devang Shah, Right Returns Financial Planning.

Financial planners are also confident that malpractices in the distribution of mutual funds such as pass backs can be eliminated with the option of no-load finds. The advice given to the clients will be unbiased by brokerages being offered by AMCs.

"Currently, distributors tend to push products on which they earn higher brokerages," said Mr Shah.

With investment options increasing dramatically, financial planners are confident that advisory services will have a significant role.

"With global investment opportunities becoming available, it is imperative to have sound advice on investment decisions. Otherwise, it would be like saying, `I don't want to go to a doctor, I know what medicines to take'," said Mr Gaurav Mashruwala, Director, ACE, a financial planning outfit.

Asset management companies are divided about making this option available. While some say that it is merely a question of time, others believe that financial planning practice in India has a long way to go before such a product becomes attractive.

"Advice is only one of the components in the load. It also goes to pay marketing costs and other expenses," said Mr Sanjay Sachdev, Managing Director & CEO, Principal Asset Management Company. No-load options, as they are available in the west, are not feasible for the current state of the Indian market, according to him.

Since Securities and Exchange Board of India capped the expense limit that AMCs can charge on funds, there is no place for a free-market determination of loads and fees.

"The structuring of the Indian mutual fund industry does not give much room for products like no-load funds," said the Chief Executive Officer of an AMC.

There is also a fear of alienating the distribution community by introducing no-load funds. While this would establish financial planners as a robust alternate channel, large corporate distributors are currently calling the shots.

"The first AMC to launch this would get mauled by the distributors," said Mr Krishnamurthy Vijayan, Chief Executive Officer, J M Mutual Fund.

"The concept is brilliant. Even though implementation would be difficult; it is merely a question of time now. It is going to happen," he said.

"It is up to the individual AMCs to decide whether they want to launch such a fund or no. Regulation-wise it is already an option, fund houses need to only take a business decision on this," said Mr A.P. Kurien, Chairman, Association of Mutual Funds in India.

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