It will soon write to SEBI appealing it to re-look at the introduction of direct option with a lower TER.
IFA Galaxy has circulated a draft letter for SEBI among IFA associations to take their views and consent on the issue of introduction of direct option.
“After we have received the consent from IFAs across the country, we will be sending the letter to SEBI. The process will take 15 days but we hope that the regulator re-looks at the regulation before implementing it,” said Ramesh Bhat, President, IFA Galaxy.
The draft letter makes out a case against introduction of direct option with the following points:
- Expansion of any market directly depends on the bandwidth of the distribution network. If more number of investors, due to the lure of reduced expense ratio, switch from a distributor to direct investments, it would directly affect the revenue stream of an IFA. With dwindling revenue an IFA would find it difficult to remain in the business and will soon try to exit out of it and start hunting other options.
- There are various servicing activities like change of address, change of bank mandate, consolidation of folios, transmission of funds, inclusion of nominee, handholding on minor investments, arranging for periodical statement of accounts, correction of mistakes in the account, change in KYC, change in contact information, that an IFA carries out.In the absence of an IFA, how would the investor carry out these duties? Do the AMCs have the bandwidth to handle such transactions? Would this not result in customer grievance? One dis-satisfied customer would stop 10 prospects from investing.
- Mutual fund as a concept was introduced to cater to those investors who are not too interested in equity market investments. Direct equity investment option is already available for savvy investors through a huge network of stock broker and sub-brokers across the country. What is the need for introducing a direct share class in Mutual Fund investment? If an investor is savvy enough, he would anyways prefer a direct equity investment. Is this not defeating the very premise on which mutual fund investments were introduced?
- Currently there are 44 AMCs offering multiple schemes and this number increases with every new launch. How would an investor make the right choice and decide on the right scheme for his investment in the maze of options available to him? Under these circumstances would he not be confused and make a wrong choice? If he loses his money due to his own wrong choice, what are the chances that he would ever come back for a mutual fund investment in the future?
- A direct investor would be largely guided by on-line mutual fund performance. What is the guarantee of these sites providing unbiased information? Further these sites do not offer periodical reviews or counseling, which is a much needed activity for helping the investor staying on course or making course corrections. Lack of this service would leave an investor stranded.
The letter also points out that the IFAs remaining in the business after ban of entry load are committed and engaged in a long term win-win relationship with clients.
