AMFI will submit its feedback on the Sumit Bose committee report to SEBI. The nine-member committee headed by Sumit Bose, former Union Finance Secretary has recommended a wide range of measures for the MF industry. The report was made public on September 03.
Fund officials say that AMFI will consolidate the feedback received from AMCs and submit it to SEBI, which will in turn share it with the Finance Ministry.
AMFI board members met on August 16 to discuss some of the recommendations made by the committee.
One of the recommendations of the committee is to introduce a free look period in mutual funds. “It is not feasible to implement free look period in mutual funds. We will share our feedback with AMFI soon,” said Jimmy Patel, CEO, Quantum Mutual Fund.
The committee has also recommended that SEBI should lower the cost caps (within the TER) with the growth in AUM. “Competition has not reduced costs much below the expense ratio that was fixed when the AUM of the industry was much lower,” states the report.
However, fund officials say that Indian mutual funds are charging a lower fee as compared to mutual funds in developed markets.
“In other markets, in addition to the TER, most investors are charged a ‘sales charge’ at the time they do a transaction. This sales charge can be as high as 3% to 5%. So I think we are very competitive,” said Vivek Kudva, Managing Director, India and CEEMEA, Franklin Templeton.
G Pradeepkumar, CEO, Union KBC Mutual Fund says “Some AMCs have started operations 15-20 years back and few of them have started operations recently. So all AMCs are not in the same business cycle and reducing TER will hurt new entrants. The TER charged by Indian mutual funds is on par or less than what is charged in developed markets.”
Another recommendation made by the committee is reducing trail and abolishing upfront commissions. Fund officials feel that reducing trail goes against the practice of promoting long term holding.
“We would like distributors to keep investors in our funds for as long as possible so that investors benefit from staying long term. Mutual funds have given healthy returns over the last 20 years. For this, the model should be - the longer the holding the higher the trail (up to a certain extent) for funds which are held beyond three years,” adds Vivek.
“The penetration of mutual funds is very low. You can’t reduce the margins of distributors if you want to grow the industry,” adds Pradeepkumar.
Distributors say that reducing trail commission will in fact encourage churning.
Let us know your views.
Read the full report here. Submit your feedback to alka.taneja@nic.in by October 05.
