The Securities and Exchange Board of India’s (SEBI) recent directive giving investors a free hand to negotiate commissions while buying mutual fund (MF) products, has kicked up a storm in the distributors’ community.
Seeing their income via commissions for selling MF products disappearing at one strike of the SEBI pen, threatening their businesses’ future, has led many distributors to rise up in protest. Predictions are that the directive is going to affect the future of lakhs of distributors and sub-brokers engaged in the profession.
While the general distributors of MFs have termed the SEBI move as ‘unjust’ and ‘against distributors’, the hardening of stance can be gauged from the fact that some MF agents’ associations have decided to boycott the sale of MF products which would begin from next month. And if that was not enough, some of them are also contemplating filing writ petitions in courts, Economic Times reported.
Also, many distributors are saying they would quit the MF business and instead concentrate on selling insurance products, especially the much-maligned and so-called investor-unfriendly ULIPs, which carry the promise of much bigger commissions – in effect a boycott of MF products.
Reports of protests have starting pouring in from across the country.
That the first step has been taken by small distributors is not surprising as the SEBI step is going to hurt them more, rather than the big distributors.
Different association members are of the opinion that that investors in smaller cities would not be able to understand the worth of advice that is being given by the MF distributors, which in turn would make it a very difficult prospect to convince them to pay the commission.
The genesis of the problem began when the board said that entry loads will be discontinued. The SEBI chief also made it clear that the industry should try to convey to the investors that lower commission MF schemes would help them earn more. With no entry load, investors stand to gain more, as the impact of it on long term investments would be huge because of the effect of compounding, he had said a few days back.