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We have a confession to make. At Personalfn, we are
admirers of con jobs. We are truly amused by the con jobs that are pulled
off by a certain Mr. Daniel Ocean and his crew. However, we are rather
disturbed when we see similar con jobs in the real world, being
perpetuated in the mutual fund industry. It hurts to see retail investors
become unwitting preys to games being played by AMCs (asset management
companies) and mutual fund distributors. Not too long ago, we pulled the
covers off
exit loads being charged to investors. This time around, it’s contests
for mutual fund distributors.
A recent trend (actually it’s an old trend which is
making a comeback; remakes, one might say) is for AMCs to announce
contests for distributors to boost their NFO (new fund offer) sales.
Distributors are encouraged to deliver a given number of application forms
carrying a stipulated minimum investment amount by a specified date. For
example, the target could be to achieve 25 applications with a minimum
application size of Rs 10,000. And distributors who achieve their
‘targets’ are entitled to gifts.
Doesn’t this remind you of the popular game “housie”,
wherein the first participant to get 5 “called” numbers on his playing
card becomes the winner of “jaldi 5”. Well, “housie” is a game and such
frills are perfectly acceptable. But in the context of mutual fund
investing, they acquire rather serious connotations.
Don’t get us wrong. We have nothing against mutual fund
distributors being compensated for their honest efforts. But the outcome
of such contests is worrisome. When a tempting offer like the
aforementioned one is put forth, it is unlikely that the distributor will
put much thought to whether the given NFO is right for the investor.
Instead, there’s a fair chance that he will work with single-minded
dedication towards achieving the target and perhaps compromise the
investor’s interests in the process. Also let’s not forget the “jaldi”
factor, which doesn’t offer the distributor too much breathing space and
forces him to choose between, either what’s right for his investor or him
i.e. the gift. No prizes for guessing what most distributors are likely to
pick.
We aren’t suggesting that distributors should solely
take the flak for this phenomenon. On the contrary, the onus lies with the
AMC. Sure, we recognise that garnering a sizeable asset size is important
from an AMC’s perspective; the AMC’s revenues are directly linked to the
same. But is compromising the investor’s interests an acceptable
proposition? We think not.
So what’s the alternative? Simple, put an end to all
contests and leave the investor alone. At the risk of sounding audacious,
we believe this is the right way forward and a win-win situation for all.
So long as the investor’s interests are taken care of and his investment
objectives are met, he will continue to make investments. This in turn
means that the distributor continues to make his income by way of
commissions. And eventually, the AMC continues to garner its much-needed
assets.
All that needs to be done is – put the investor where
he deserves to be, at the centre stage. And the rest will follow. Contests
only seem to add unnecessary pressure and disturb what can be a perfectly
harmonious relationship between investors, distributors and AMCs.
We urge the Securities and Exchange Board of India to
scrutinise the phenomenon of mutual fund contests and their impact on the
mutual fund industry. Necessary regulations must be introduced to ensure
that investors’ interests are protected at all cost.
As regards con jobs, we believe they are best left to
Mr. Ocean and his crew.
Please Note: Personalfn is a financial
planner involved in the mutual fund distribution business. We have never
succumbed to marketing gimmicks of AMCs. For us, as always, the client’s
interest is top priority; all other objectives rank far behind that. If
you wish to meet a Personalfn consultant and experience our honest
financial planning services first hand, please
click here. Also, please read
Our
Pledge to Our Clients |
