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'Investors Are Not Self-Motivated'

Distributors have taken SEBI to task for imposing a ban on entry loads

After the Securities and Exchange Board of India (SEBI) said that entry loads will be discontinued Value Research asked the very people who will be most affected by the move to give their reactions – the fund advisors.

Here are some samples:

Sushil Bajaj: “Investors Are Not Self-Motivated”

I have found a unique way to protest against SEBI’s way of thinking. Mr Bhave thinks that, after abolishing entry loads, investors will invest more because of cheap products that offer no deductions. But I want to tell him that there are no self-motivated investors (because MF doesn't guarantee returns and most Indian investors want capital protection). Who will voluntarily want to invest in MFs? Brokers are the ones who mobilise investors funds towards risky assets like mutual funds.

In any case, all the self-motivated investors are already investing directly with AMCs.

Now, distributors can adopt a new strategy and they can start boycott MF industry and also start mobilising funds from mutual funds to other investment products like life insurance and post office schemes.

Meenakshi Rathore: “Variable entry load should be the right choice.”

We think it was premature on SEBI’s part to take a decision to ban entry loads.

Variable entry load should be the right choice.

Manish Kumar Agarwal: “We’ll Sell ULIPs”

No entry load is a good move theoretically, but practically it is against investors. If a mutual fund advisor does not get money from selling a fund, he will sell ULIPs instead. That will be more costly to the investor.

There are no rules and regulation for entry load, monthly policy administrative charges, sum assured charges, mortality charges, fund management fee, miscellaneous charges, etc. Instead, there are very high commissions, up to 50 percent, for distributors who sell those products.

So If you want to earn money, why sell mutual funds, sell ULIPs, which is a milch cow for all (agents, unit managers, and insurance companies). Actually, government is promoting insurance ULIPs and harassing mutual funds. So sell ULIPs and earn money.

Arun Gupta: “The entry load on inter-switching of schemes (debt to equity) should be abolished”

This move of SEBI abolishing entry load comes as a huge shock to me.

If SEBI wants to avoid churning, then instead of abolishing entry load, the entry load on inter-switching of schemes (debt to equity) should be abolished.

Vinayak Godbole: “Please remember investors don’t come to advisors’ office”

Here are some common queries that a common investor asks:

1. What is the future of my money if mutual fund declares bankruptcy?

2. What will happen if market falls to ‘zero’?

3. Does interest add to my investment every year?

4. What will happen if share market remains static?

5. Is it good to invest only in mutual funds floated by govt owned corporations?

6. What is debt?

7. How can I invest in the best fund that will give me 30 to 40 per cent returns?

8. I want to invest for 1 to 2 years. How can I get 13+ per cent assured returns?

When markets crashed last year, there was hardly any investor who was willing to invest. Moreover, most of them filled redemption slips! So on and so forth.

And you think an investor will invest in mutual funds without a distributor?

Please remember investors don’t come to advisors’ office and say they are interested in mutual fund investments. It is the advisor who has to knock on investors’ doors and convince them about mutual fund investments benefits over other avenues.

Om Prakash: “SEBI is trying to bring about a revolution through a day dream!”

I am an IFA pursuing this career for the last nine years. SEBI is going by the Congress method of mass populism.

SEBI does not know how a system runs and what constitutes the growth of an organization. It is only concerned about spreading the dimension of mutual fund investment among masses. It does not know the fact that after 60 years of independence India is not the US. Half of our population still does not get proper food for the family and Bhave is trying to make our country better than the US. In a country like India, Bhave wants to make every individual a financial expert. If it is so, then I feel there is no need of any distribution channel in any business as all channels involve a huge cost to the company.

From morning to evening we use many products and services in our day to day life and I did not find even a single product, even water, where the entity arranging the same to us is not earning more than 2 per cent through its distribution channel.

SEBI needs to look into its own backyard before coming to this conclusion. It should educate our masses about mistakes committed during the investment process. It should make the system very transparent so that every individual could understand why the entry load is being charged. Is it being charged for free or for some services and advice rendered?

There is no entity in this world which runs without marketing and distribution channel whether direct or indirect. SEBI is trying to bring about a revolution through a day dream!

It will only lead to slowdown of savings and hence deterioration of Indian Capital Market.

Guru Atwal: “Nothing is free in this world”

I just wanted to say there was an action taken by SEBI a few month back where anyone can go to AMCs for investments and without giving any entry load.

But if someone wants to come through a broker and needs guidance and help to chose fund according to his risk tolerance, he should be charged, like any doctor or CA does.

But my dear friend, in India no one is ready to give any money for any service they receive.

Nothing is free in this world, we think the best things in this world are free i.e. nature, but it too takes something from us in return i.e. years of ours lives.

If an investor has an option of investment made in mutual fund to chose from direct method of applying or from broker, that is fine if he goes directly he/she won’t be charges any entry load, and if he/she chooses to come to a broker he has to pay an entry load of 2.25 per cent, that is fine and transparent enough.

That is where the case should be closed.

Also read:
‘Don’t Kill the MF Industry’
'It is Like Being Laid Off'
'Sebi's decision will be counter productive'
'SEBI Has Grudge Against Distributors'