Let me begin with a simple question. Who do you think has a key role in making the mutual fund industry reach Rs.26 lakh crore AUM?
If you think it is AMCs or distributors, let me introduce you to investors. Simply put, investors have given AMCs and distributors an opportunity to help them grow wealth so that we can make a living out of it.
Unfortunately, interest of the key stakeholder, the investor is not centre stagein the Rs.26 lakh crore MF industry. This is largely due to sales practices prevalent in the industry.
Instead, mutual funds should be sold on its merit such as past performance, fund strategy and investor’s needs.
I strongly believe that interest of investors will continue to take a back seat if the mutual fund industry does not move from price driven sales approach to a merit based sales approach.
One way to do it is to introduce uniform commission structure (in percentage terms) irrespective of volume, age of assets and size across distributors. Discrepancy in commission payouts need to be controlled to shift to merit based sales.
If commission structure were uniform, most distributors who usually focus on interest of their clients will purely sell based on merits.
Among other benefits of merit-based approach are AMCs have to ensure better performance to remain competitive in the market and the conversation between AMC and distributor will be limited to performance and strategy of the scheme.
Another way to shift to merit-based sales approach is introduction of SRO for mutual fund distributors and RIAs. The distributors will be independent under supervision of forthcoming SRO. The SRO in turn will take care of all service or operational related issues of distributors.
Surendra Kumar Bagaria is Kolkata based mutual fund distributor. The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.
