Srikanth Meenakshi, Founder and COO, FundsIndia.com
Ban on upfront commission and the move to all-trail model are welcome measures for the industry. It will encourage a long-term focus among distributors. So while, it will affect their revenues in the short term, patience will be rewarded.
On reduction of TER, only handful of schemes will have a significant impact on their fees. However, small sized AMCs and schemes will stand to benefit from this move. It could influence many distributors to recommend products offered by these AMCs. In my view, there are small sized schemes with good track record and performance. However, they have not get the attention they deserved.
Rajiv Bajaj, Chairman and Managing Director, Bajaj Capital
Reduction in TER and ban on upfront commission will affect retail investors. In my view, there is a big difference in servicing retail clients and HNIs. Though you can wait for the payoff if the ticket size is large, most distributors would end up incurring costs to service small ticket investors. I am afraid that the decision will leave retail investors unserved. The MFAC sub-committee could have involved distributors to understand needs and aspirations of retail investors. I think the move would go against the spirit and intention of the regulator to safeguard the interest of retail investors.
Distributors focussing on SIP book will have to wait long to create some wealth out of distribution business. I believe the breakeven point in building SIP book would now increase from 5 years to 7 years.
Also, the move will benefit small sized schemes and emerging AMCs. In addition, there will be a shift to other financial products such as PMS, AIFs and ULIPs.
Kailash Kulkarni, CEO, L&T Mutual Fund and Vice Chairman, AMFI
When SEBI banned entry load in 2009, everyone was talking about the end of distribution industry. However, distributors emerged more strongly after that. Over the last 15 years, we have seen distributors dealing with these challenges effectively. Though there will be a kneejerk reaction, things will settle down with time.
For AMCs, large sized funds cannot charge much. There will be impact on earnings. I can say that just like revenue per customer has come down for telecom operators; AMCs and distributors will have to face a similar situation in the mutual fund industry. However, if we focus on increasing the customer base from 2 crore to 5 crore or may be 10 crore in the next five years, there will be enough on everyone’s plate.
Another thing we need to look at is the date of implementation of these proposals. In addition, SEBI has said that they will consult the industry before finalizing B30 rules. These two factors will have a greater impact on the business.
Suresh Sadagopan of Ladder7 Advisories
There may be some short-term dip in revenues for both mutual funds and advisors. However, these measures are likely to be positive for the industry over the long term. If you look at historical data, there were similar doomsday predictions post SEBI’s entry load ban in 2009. While the industry experienced short –term consolidation post the ban, today it has quadrupled in size.
I urge everyone to remember that our industry stands for the benefit of investors and not for profitability of fund houses and advisors. While there may a short-term blip in earnings, as the investor benefits they will invest in mutual funds in large numbers. Thus, despite lower per unit earning, the industry and advisors will benefit from higher volumes.
Satheesh Krishnamurthy - SVP & Head - Affluent Business (Wealth Management & Private Banking) Axis Bank India
The MF distribution industry is still at a nascent stage. Ideally, fund houses should absorb the cost as they have economies of scale. In case the AMCs pass on the cost to distributors then impact will depend on the size of the player. Larger players like distributors and advisors with a sizeable book will adjust to the new economics of lower commission but it will adversely affect the business model of smaller IFAs.
Dhairyasheel Patil, President, PIFAA
The all trail model will make the cost of acquisition of small clients unviable. It will lead the advisors to focus on Rs.10,000+ SIPs category of clients, which will have a negative impact overall on mutual fund penetration. Logically, no one would look at micro SIPs of Rs.500 and Rs.1000.
Moreover, it will increase the break-even point for advisors starting their business. Where earlier it used to take 5-6 years for the advisors to breakeven, now it will take nearly a decade to make some money in this profession.
Akhil Chaturvedi, EVP - Head Sales Motilal Oswal Mutual Fund
The ban on upfront commissions will create level-playing field in the mutual fund industry. "I believe the move will make the mutual fund landscape fair and competitive for all participants. AMCs will now have to create edge in terms of value addition, superior performances and differentiating factors that can ensure they remain attractive to advisor," he added.
