The distributors need to understand that they no longer are mere sellers of mutual fund units but are expected to provide correct, unbiased and reasonable investment advice to investors, says V Ramesh, Deputy Chief Executive Officer at the Association of Mutual Funds in India (AMFI). Read on to know the views of the industry body.
Mutual fund industry was initiated in India in 1964 with the enactment of Unit Trust of India Act. Since then the industry has grown significantly. The number of fund houses has increased and product offerings have multiplied. The pace of growth picked up in the last 15-16 years, with the entry of many private sector players.
The industry is still evolving and distributors have a key role to play. Distributors are an important intermediary in reaching the mutual fund products to the investors. In the initial days, distributors sold LIC policies, UTI units, equities, company deposits, etc. The distributors then were not necessarily investment advisors. Slowly, some distributors began to advise their investor clients based on a financial plan. Wealth management thus came into being and financial planning became central to the business of distribution.
Mutual funds became an important part of financial planning. Subsequently, financial planners/distributors were required to register with the Association of Mutual Funds in India. They were required to appear for a test and received an AMFI registration number (ARN). In the last fifteen months, far-reaching regulatory changes happened. One of them was the end of entry loads on investments in mutual fund schemes. Entry loads were a major source of commission income for distributors. The changes have led to a paradigm shift in the way distribution is done in India. It also meant that each distributor had to redraw the strategy for customer acquisition, customer service, etc. We are now at a stage of realignment. Stock exchanges have also become a channel for investing in mutual funds.
With these changes, gone are the days when there used to be many part-time distributors. Distribution has now become a serious business. It needs lots of research, methodology and professionalism. The service aspect is more of an advice requirement rather than taking care of the logistics for submission of requests, etc. There is greater emphasis on training and other aspects for distributors.
The distributors need to realise and understand that they are not just the conduit for investors to invest in mutual funds. Instead, correct, unbiased and reasonable advice is what every investor is seeking from the distributors. It is also important to expand the mutual fund investor base to all smaller towns and villages so that the objective of channelising savings into the capital market for the benefit of investors can be achieved.
It is nice to note that Cafemutual has taken an initiative to provide a platform for distributors. A website with a distributor orientation will help the distributors interact and share their thoughts and ideas. Above all, sharing the best practices will be a major advantage of such platforms, but the key is that the distributors need to share their best practices with everyone so that it benefits everybody and ultimately, the industry.
As in any business, effective control will go a long way in creating healthy competition. Distribution is no exception to this rule. AMFI had implemented AGNI (AMFI Guidelines and Norms for Intermediaries) to provide a guideline to the distributors. Currently AMFI exercises some control. However, there is definitely a need to draft effective regulations for the distributors. We may, therefore, look at creating a regulation in future to ensure that distributors do not compromise on ethics or norms of doing this business. Appropriate regulatory framework will support the growth of a sound and healthy industry. Such control will make mutual fund distribution more attractive and help expand it seamlessly.