MF distributors need to be paid well for new biz

With the markets plagued by low sentiment, Mr V. Ramesh, Deputy CEO, Association of Mutual Funds in India (AMFI), admits that adding investor base is always a challenge for mutual fund industry. In an interview to Business Line , Mr Ramesh, who has vast experience in the financial services industry, shares his thoughts on other key challenges faced by MF industry.

Why are MFs struggling to add investor base both in terms of folios as well as in value? Is it due to excessive dependence on distributors?

Mutual fund products are always sold and not bought. In a market situation like today's, with the investor not sure of the stock market condition, selling MF products is an effort. This cannot be termed as distributor dependence. Distributor or no distributor, the major issue today is the market condition, besides other issues that have its impact in bringing in more clients into the industry. Therefore, at these times, adding investor base is always a challenge.

What are your thoughts on the decline the Systematic Investment Plans are going through today?

For SIPs to show returns, there has to be at least one bear market and one bull market. In a situation where there is prolonged bear market, it is difficult to see positive effective returns in SIP investments. The lack of returns have influenced the minds of SIP investors and many tend to stop the existing SIPs or do not start one. It is wrong to stop SIPs when the markets are bad. In fact that is the time when continuous regular investments needs to be made. But the facts remains that people get worried when returns are not seen after a couple of years. My suggestions will be to keep SIP investment running for 20-25 years. This will work like a retirement plan, education plan, marriage plan, etc. Small amounts saved for very long time will definitely benefit as the long period is sure to have a few bear and bull periods. That is favourable to SIP investments.

Though the Government allowed foreign investors to invest directly in MFs last August, there has not been much headway on that front ... We can't blame it on low financial literacy ... Your comments.

Financial literacy is only one aspect. There are many other aspects like convenience, legal issues, tax issues, etc. The very fact that PAN is required for investment is a major deterrent for investment by foreign investors.

Merger and acquisitions have been happening at a fair clip in AMC space, particularly with foreign MFs. Do you see a trend here?

In any industry, consolidations happen at particular juncture. AMC space is not different. There is no trend or pattern here whatsoever. It all depends on the strategic business decisions being taken by the respective sponsor of the AMC. However, since Mutual Funds are highly regulated, such consolidations will not really impact the investors. Investors need not worry too much about it.

Do you foresee any bright spots for asset management companies given the current investors' sentiment?

The fact that less than 2 per cent of the 120 crore population has only invested in mutual funds and there is a large canvas to cover is the brightest spot that I see for Asset Management Companies. Investors' sentiments will keep changing with the market conditions.

For quite sometime, the AMFI has been talking of launching a platform for the distributors. When can we expect that to happen? How long will it take to implement?

We are fairly at an advance stage of launching MF Utility. It is a order routing front-end application. We have submitted a formal proposal to SEBI and expecting a response from them. Once we get a go-ahead, we will proceed to execute implementation. It is expected to take about 8-9 months from then on.

AMCs are feeling the need to remunerate distributors to bring new business. What is your take?

In any industry, all stakeholders need to be appropriately remunerated to make a business case for them to be in the industry. Distributors also need to be remunerated enough to keep their interest in the industry. When you talk about “new business,” it will essentially means new clients and the efforts to get new clients are much more. Therefore, it is quite natural that distributors will look for remuneration for bringing in new business.

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