Two days ago, Finance Minister P Chidambaram made a statement that appears to be a hint that a restoration of mutual fund entry loads might come back on the government's agenda. While speaking at the high profile function to celebrate the 20th anniversary of the National Stock Exchange, he was reported to have said, “I recently attended two workshops, and I was told that mutual funds are not getting sold. Mutual fund is a sold product and not a bought product. Distributors need incentives to sell it.”
Distributor's incentives of course, is a euphemism for entry loads. Entry loads were abolished by SEBI in mid-2009. Since then, financial intermediaries have seen a marked reduction of interest in promoting mutual fund investments. While the cause and effect is not unambiguous, it can't be denied that other things being equal, higher distributor interest would have meant more investments.
Before this in the speech, he noted, as he has often done recently, that while Indian households were saving a lot, they were deploying most of these savings in real estate and gold. He recognised that inflation was one driver for such behavior and that inflation had become a complex problem.
Clearly, this one-off statement can't be taken as anything definitive. He was careful to point out that this was something that he had learned only recently, meaning that it wasn't his view or his ministries, least of all SEBI's. However, Mr. Chidambaram chooses his words carefully and the very fact that he brought up the issue means that somewhere, the reduced enthusiasm of intermediaries for mutual funds is on the official radar.
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