SEBI will not force MF industry to reduce agents commission: Chairman

Equities and commodities market regulator SEBI will not immediately force the mutual fund industry to reduce distributor commissions further, UK Sinha, Chairman, SEBI, said at a conference on financial services here.

“SEBI does not want to get into the issue of agent commissions now. We would rather like the mutual fund industry to take the initiative to reduce costs for investors,” Sinha said.

Bose panel report The Sumit Bose Committee had recently published a report recommending that upfront fees for MF distributors should be completely phased out in order to reduce costs paid by the final investor, shorten the period of trail commissions paid to distributors and curb mis-selling.

“But if the fund industry does not move towards gradually reducing costs for investors, SEBI won’t hesitate to take action,” Sinha added. The statement assumes importance because the industry has been worried that by taking out the distributors’ incentive to sell products, inflows into mutual funds would fall.

Under distributors’ clutch However, he also noted that fund houses are “in the clutches of distributors” and haven’t done enough to promote direct plans, where investors can bypass the advisor to invest at a cheaper rate. “Because of this, SEBI has formed a team headed by Nandan Nilekani to show us how best to use technology to sell mutual funds. This way, investors can buy funds with the same ease as they buy phones online.”

At the conference by financial advisor 5nance.com, Sinha spoke about the development in the securities market and the need for capital market players to create an atmosphere that investors can have faith in. “Every scam in the capital markets takes us back by 10 years and it takes another 10 years to get investors to trust the capital markets again.”

Surveillance system He also said SEBI’s surveillance system has improved dramatically over the years. It generates about 100 alerts a day from continuous monitoring of trading patters. About 10 per cent of this warrant investigation on whether trade manipulations or tax evasion is taking place.

The industry should also make investing easier. “We want to implement a single KYC process across all financial products. But that will take coordination across several ministries, so I can’t give a timeline yet on this.”

Retail investors & IPO Referring to retail investors directly putting their money into IPOs, Sinha said the low rate of retail participation in the two recent large IPOs — Café Coffee Day and Interglobe Aviation — did not worry him. Instead, he would rather want small investors to invest their money through better-informed advisors or institutions, particularly through mutual funds or pension funds, he said.

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