Admin
Posts: 11
Posted:
9.Jan 2008 - 23:13
Hello Sir,
You are welcoming the implementation of waiver of 2.25% entry load very much. I am differing with you on certain points.
1) How many small investors below Rs.100000 is going to be benefited.
First of all they are going to miss the guidence of the genuine advisor's service. If they are capable of managing the issues on their own then they can go direct to SHARE MARKET, and play their own game. Only people who have no time to spare for watching the market trend, share movements, bullish or bearish trend, past performance and future expectations etc are using the service of the AMFI ADVISOR'S - and investing in MUTUAL FUNDS.
The load 2.25% if you calculate into account a small investor is going to get a gain only to the extend of Rs.1000 to 2000 after a lapse of three to four years. But how much they are going to incur and loose in this process.
a) Who is going to supply forms to them. What is the transport cost, telephonic and E Mail charges.
b) Who is going to tell that the particular issue is good / average / below average. Normally all the Fund managers will say that they are the only good.They won't say that their product is not that good. The investor is missing the chance of comparitive study.
c) Don't say all the advisors are only for NFOs with good return to their pocket. If you have this feeling with you, I can say out of my total AUM more than 80% is under ONGOING that too with DIVIDENT PAYOUT OPTION.
With the waiver of 2.25% entry load, No advisor is going to get commission. Then without primary commssion there is NO TRIAL FEE. The management is going to get more profit. But is it possible to mobilze more funds. I am doubtful even the latest issue by the reputed company is facing problem in mobilizing application.
Leave alone the above factors. What is the necesity for becoming AMFI Certified Members. With out income no body will prefer to be an AMFI Advisor. It is better to close AMFI set up.
In my opinion it is better to introduce the same with LIC. Normally LIC is paying around 14 to 35% of the first year premium as commission to their agents. Instead of paying Commission to the agents, tomorrow onwards if the policy holdergo to branch directly and ready to take a policy on his own then Corporation give more maturity / units to them.
One thing is very clear, the advisor community is going to loose their income and become unemployed.
BEST SUGGESTION FROM ME
We can waive entry load above 2.5 Crores. ( Present it is above 5 Crores )
There is no UNION for the advisors. All the AMCs till date availed the services of the advisors. Now they are having gull list of the investors. They are now confident that even without advisors they can mobilize funds from the individual directly. But it is at the cost of more than 500000 advisors. SEBI is playing against the income genetration oppertunity of the advisors and want to favour AMCs. No small investor is happy..They are going to miss the valuable guidence of the sincere advisors service.
Yours truly
T.N.SUBRAMANIYAN
Admin
Posts: 11
Posted:
10.Jan 2008 - 01:15
1. The entry load has not been totally removed. It has only been removed for investments made directly with the fund house. Currently, this is hardly 4-5% of total investments.
Since many fund houses have branches only in big cities, investments from people coming from smaller towns and villages would not get affected by this for at least some time to come.
2. I agree that for a one-time investment, this would not make much difference due to transportation and other costs.
But what about SIPs? Investors don't need advise every month to invest in the same scheme. Such investors should definitely be given an option of no entry loan, and this is a step in the right direction.
Please see my detailed comment in the article "No entry load for Mutual Funds (MFs) - What does it mean for you?" http://www.raag...ticle90.html
3. This is a more general trend - The regulators in India are gradually removing intermediaries from transactions. This means that they are bringing the primary parties closer using newer technologies and more efficient methods.
For example, if large hyper markets and super markets can buy products directly from manufacturers, and provide them at a lower cost to the general public compared to a local kirana shop, doesn't it benefit the ultimate customer? Then, why not allow this? And this is what is happening in the retail sector.
Removal of entry load for direct investment in MFs is a very similar step.
4. Just because entry load has been removed for direct MF investments doesn't mean everyone would rush in that direction.
If an advisor is providing genuine value through her / his guidance, there would be people willing to pay for it.
Take the example of flight bookings. Internet bookings have been permitted for some years now, but does it mean that the travel agents are out of business?
No! Many people still go to the agents, and pay them, because the agents can provide value - compare prices, find bargains and customize itineraries. There is genuine value added by the travel agents when they do this - and that is why people still go to them.
But does it mean internet bookings should not be allowed even for people who know exactly which flight they want? If they are ready to plan things for themselves, it should be allowed, right?
Same way, even for financial advisory services, there would be loads of people willing to pay for genuine advise. We as advisors need to gear up and tighten our belts, and provide the best service poaaible so that our customers understand the value of going through us!
I would love to hear other points of view on this.....
Admin
Posts: 11
Posted:
31.Jan 2008 - 08:07
Dear Raag,
As the ?chief cook and bottle washer? in my office I do not have much time for discussions. However as a goodwill gesture and a contribution to your newly set up website here is my take on ?investors doing it direct?:
1. Investors were totally ignorant about mutual funds and their multifarious features ? it is us who spent hours of time educating them about this. While everyone else was selling UTI ? I was advising Mutual funds. I remember spending hours talking to investors about ?risk control, liquidity, profitability, tax benefits and the working of a mutual funds? and to keep me quiet they used to put down a nominal amount. I thought to myself ?today they are dipping their toes in the swimming pool ? tomorrow they will jump in?. After being educated they want to eliminate us - I think the Hindi expression is ?Ban gaya baap?.
2. Now let us study the background:
a. In advanced countries the investor goes to the consultant for advice and is charged for it. Thus investors are ?advised? and not ?sold? a product.
b. The commission rate is generally ?6%? and the investment advisor can waive a certain percentages based on negotiations with the client and based on the quality of services rendered. Thus if he waives ?2%? the client is charged ?4%?.
c. In India an investor gets free advice. He walks into an office ? takes up hours of time of a distributor ? gets a plan made up and says ?I will think about it?. He is then free to go directly to the mutual funds and invest the money. This is highly unfair to the distributor. The distributor has no ?hold? whatsoever over the client.
d. The commission is generally 2% (on share funds ? commission rate on debt funds is not worth talking about) out of which around 50% goes in tax - 33.99% Income Tax and 12.36% Service Tax. Since commission sharing is banned - it is not a permissible deduction ? thus if the distributor is sharing commissions it has to appear in the accounts under some head or as a concealment of income ? or else he will earn nothing at all. Thus the distributor is working on a meager margin of 1%. Since the amount of commission is so low and since the distributor has no hold over the investor these ?half baked? measures should not have been brought in. If the SEBI wants to implement a package it should implement it totally and be fair to all. These are populist measures by the SEBI chairman and lacks justice for the above reason. If the distributor does not earn sufficiently due to these ?existence threatening measures? then the quality of distributors will diminish. As my mechanic says ?if something is working properly do not disturb it?.
3. Distributors who are sincere about their line understand the needs of investors, make up a plan, make up a portfolio, do the clerical work, follow up on complaints until they are resolved, meet clients multifarious demands, give capital gains, dividend and other tax reports, detailed transaction and snapshot reports ? for 1% it is definitely worthwhile for the investor. Why disturb something when it is working cheaply and efficiently?
4. The AMC?s are not equipped to spend time over the investor ? forget understanding the investor?s needs and risk profile etc. In fact the investors who are going direct are treated very shabbily and are told to read up everything. The KIM does not guide a person on ?investment planning etc?. They fill up the forms wrongly and almost every application faces a ?counter rejection? on one ground or another. Since the AMC?s are so busy with these direct clients their services have deteriorated.
5. World wide informed investors can do it direct. The worldwide average is around 10% for such transactions. So informed investors, people who think they are informed, AMC employees will truly benefit from this. The justice of ?differential pricing? is a matter of debate.
6. However from what I hear the main reason for rushing this move is because public sector enterprises will be permitted to park their funds with mutual funds. There will be huge kickbacks (under the table) if this had not to be introduced. Now they will be ordered to go ?direct?. For this the ?direct? concept had to be in force.
All the best,
Stephen D?Souza
Just Started
Posts: 2
Posted:
2.Feb 2008 - 07:05
In India, people on an average are not ready/amenable to the idea of fee based advice. To me, a distributor (real one and not the one who only hawks NFO) is indeed spening time in understanding the needs and then hunts downs a scheme which suits the investor. That is actually not easy and require due diligence from the distributor.
Rakesh Samar