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Mutual fund distribution in B30 cities presents many challenges to MFDs. A key aspect of B30 distribution pointed out by MFDs working in these locations is the inadequate commission structure.
At the recent launch of Choti SIP or Rs.250 SIP by SEBI and AMFI, SEBI Chief Madhabi Puri Buch said that distributors should invest in their business. She said, “The solution is to align incentives. If we have a perverse incentive in the market, guess what will happen? You will get bankrupted. So, for us, it's very simple. People who invest in their career will go and convert new clients. And they will take a long-term view, at least we hope they take a long-term view of their clients that they're going to serve them over a long period of time and get them into a larger and larger portfolio.”
The SEBI chief also expanded on the role of MFDs in the investment journey of their clients. She said, “Helping the investors manage their reactions when there is a cyclical correction in the markets is a part of the role of the distributor. In fact, the role of the distributor becomes more important when there is volatility and cyclical downturns in the market. In the rising times, you can sell anything, right? So, MFDs should not just sell an MF product at that time and propagate and present to the investor that this is a single, unidirectional trend. In the long-term, it is. Because the data shows us that while there is volatility in the short-term, the long-term trend is positive.”
Earlier, SEBI has also proposed introduction of an incentive of Rs.500 for MFDs and execution only platforms for bringing in SIP of Rs.250.
SEBI Chief said, “I think it (the present incentive structure) will encourage the right kind of advice, the right kind of incidental advice, because mutual fund distributors are allowed to give incentive advice. So, I think that that is actually a self-correcting mechanism and it is responsible distribution, it’s responsible investing, it's long-term investing.”
While concluding her remarks, Buch asked MFDs to be patient at the start of their distribution journey and invest time and effort to reap rewards. She said, “The distributors should also understand that they are building a career. If you join a corporate, you invest for the first few years in your career. So, even as a distributor, you invest.”
