The Hindu Business Line : Distributors lure investors with physical incentives for NFOs

Kolkata, Aug. 22 When the going gets tough, the tough gets going. Distributors of mutual funds, typically those who sink their teeth into new fund offers, seem to have taken this adage to heart. Witness the proliferation of innovative ways in which some of them are vending funds offers in difficult market conditions.

So, while one of them is offering “Kitchen Infrastructure” (Basmati rice, Sundrop oil, Pepsodent toothpaste and the like) with applications for DBS Cholamandalam Infrastructure Fund, another is devising an “ELSS Superpack”, comprising an investment of Rs 500 each in as many as 20 tax-saving funds.

Take the bit about kitchen infrastructure. The intermediary in question – we are not naming it here – has urged clients to invest in the DBS Chola new fund offer on certain days and get hold of “useful kitchen infrastructure items”. Many of the items listed by it can make it to the shopping list of an average home-maker.

The distributor, in fact, has graded the gifts according to the application amount. An investment of Rs 10,000 can win a client a 1-kg pack of India Gate Basmati Rice and a 1-litre pack of Sundrop. Double the amount and he will get in addition Tide detergent and Pepsodent toothpaste. Triple it and he will take home 700-ml Head & Shoulders shampoo.

The innovative ELSS Superpack, billed as the ‘Concept of the Month’ by the distribution outfit – Usha Advisory Services, will ensure an investment of Rs 500 in a clutch of tax-savers, including older products such as Birla Sun Life Tax Relief 96 and Magnum Tax Gain as well as new-generation funds such as Fidelity Tax Advantage and Lotus India Tax Plan.

The Superpack minutiae, as presented by the distributor, include recent performance history of the 20 funds chosen for it. Bits like Kotak Tax Saver delivering 65 per cent in one and a half years, and ICICI Prudential Tax Plan appreciating 9.5 times in about 8 years are furnished. The distributor, of course, does not fail to provide critical information too – that an ELSS investment, which will allow benefits under the relevant section of the I-T Act, is locked in for three years.

Leading intermediaries, who feel distribution of savings and investment products should be tied to proper advice based on financial planning concepts, speak out strongly against the use of stunts. “Customers need advice based on their risk profile”, noted Mr Anil Chopra, CEO & Director, Bajaj Capital.

Distribution sources concede that tougher market conditions are discouraging investors to put in fresh money into new fund offers. Provision of physical ‘incentives’ to clients, a practice that needs to be discouraged at all levels, will create unfair advantage for the intermediaries concerned, they observed.

Mr A.P. Kurian, Chairman of Association of Mutual Funds in India, underlined the need for greater awareness about the issues. “The investing public has to build a consensus on the matter and take a firm stand on it,” he maintained.

Investors’ attention, sources add, is currently turning to existing funds, ones that have a decent track record to speak of. While bearish sentiments are said to be hitting NFO collections, a significant part of new allocations is in favour of existing funds.

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