I recently read that the Securities and Exchange Board of India may be planning to cap distributor commissions in mutual funds. While the market regulator is rightly concerned about mis-selling, there exist some systemic issues connected to commissions, which need to be addressed alongside. As a financial educator, I meet mostly retail investors at my sessions. There are some who are already investing but a majority of participants are those who have not yet invested in MFs and want to start now but with smaller amounts. The preferred investment is in an equity fund SIP. Every session I conduct only reiterates what I have been saying all along, the retail investor has no access to advice.
The reasons are manifold. Firstly, at the current commission, a distributor will not be able to cover even the cost of transportation used to get an SIP of ₹10,000. So servicing customers who are investing less than ₹10,000 is not economically viable for the adviser and she may choose to advise a new fund offer (NFO) with higher revenue. While some distributors may consider working on volumes or waiting for a while for clients to increase their investments, many may not be able to take this gamble.
