Distributors seem to be unhappy with some recent developments. What should be done to balance the interest of all stakeholders?
I believe that distributors should be adequately compensated. Distributors play a key role in the growth of any industry. For example, you can see the kind of growth pharmaceutical industry has witnessed. Distributors get handsome margins for selling life-saving drugs.
Compared to distributors of other competitive products like insurance and real estate, we have very few active distributors in MF industry. If MF distributors are not compensated adequately, they will sell other products offering higher commissions. So let market forces determine commissions.
Another disruption for the industry is service tax. According to the law, service tax has to be paid by distributors. However, I believe that mutual fund agents are taxed more than tobacco products. Since the government had given exemption from service tax in 2012, they should reconsider their decision. The best solution is to reach out to the Finance Ministry on this issue. We will be happy to help our distribution partners on this. In fact, we are trying to create unity among distributors to tackle this issue.
SEBI has asked fund houses to reduce costs. What do you think about the scope of reducing costs in mutual funds?
There is always scope for everything. Nandan Nilekani can guide us better on using technology to reduce costs. We have to figure out what is possible and viable. I am sure there are better and efficient ways to reduce costs.
Should the industry abandon additional expenses in lieu of exit loads and B15 expense voluntarily to reduce costs?
I believe the B15 market has grown due to the additional TER provided by SEBI. Many AMCs have invested in B15 locations to expand their footprint.
You cannot change a law which has helped the industry grow. All we need to do is balance it properly by aligning interests of all stake holders – AMCs, distributors and investors.
What do you think about e-commerce distribution? Will it be a threat for brick and mortar IFAs?
I don’t think e-commerce distribution will be a threat to the traditional channel. Despite e-commerce being around for a long time, people still go to stores for shopping.
I think we should look at it from the perspective of customer segment. The e-commerce distribution space is likely to cater young net savvy clients. People who still prefer to visit bank branches may not like to go to such platforms to buy mutual funds. Also, I believe investors need handholding of distributors to invest in mutual funds.
