The Hindu Business Line : Distributors - only sensitive to incentives?

Yeh sab rakho... thoda paisa badao". Those ordinary Hindi words would not mean much if you consider them in isolation. Put them in the context of mutual funds, and their meaning turns quite sinister. In reality, these were spoken by a distributor when he was approached with a scheme by a fund house, a relatively new player in the country's asset management industry.

The reference was, of course, to the commission (and more?) that the fund is expected to dish out when its product gets sold to investors.

The MF executive, a veteran who has put in quite a few years behind him, took it all in his stride but narrated the incident to us all the same. To him, what was most galling was the manner in which the man had actually pushed away product literature and demanded that they talk first about his take.

That's what selling MFs has been reduced to, the executive lamented, forcing one to consider the many implications of the trend.

Mis-selling of products by distributors who do not care much for their merits still remains a big concern for our investors, especially the ones who come in blindly, goaded by their faith and smooth sales talk.

Indeed, the importance of correct selling strategies cannot ever be overemphasised. It is criminal to sell - permit us to use ageless language here - `the wrong products to the wrong person'. A retired, 65-year old may not really need a very aggressive equity fund when he should actually allocate money to a staid income option. Remember, IT sector funds got sold to all sorts of investors during the tech boom of 2000.

Distributors in fact need to be completely ethical when they deal with clients, particularly when they help such clients to take decisions. And the fact that they do help on many occasions cannot be wished away. After all, distributors arm themselves with the latest figures and relevant data, which they often use to make a point or two.

But here's another take on our distributor friends. A fairly well-known distribution house is known to have cautioned its frontline sales executives not to behave too wildly at parties thrown by asset management outfits. The reason? The revelry got too hot for comfort when a major fund house recently invited a large number of guests; there were scenes that could have been avoided, one is told.

The question is, who or what can stop distributors from mis-selling or following other undesirable practices? Mere legislation will not be enough. While the regulatory agency and the MFs' association have their roles cut out, vigilant investors too have a major task to perform on this front.

"Stop being naïve, warm up to your responsibilities and protect your rights" is what investors should tell each other. That will help in curbing devious customs more effectively.

Thank God, not all elements in the distribution community are the same. The good apples need to be separated from the bad ones. The smart distributor, who will appreciate the loyalty of his clients, will strive to build a good investor base by serving them in the most desired manner.

Feedback may be sent to nilanjan@thehindu.co.in

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