A few days back, the capital markets regulator, Securities and Exchange Board of India (Sebi), announced measures to attract more inflows into the Rs 7.3 trillion Indian mutual funds (MF) industry. It also announced a few measures that it felt would increase the penetration for the industry.
Beyond the ‘top 15’
As per July 2012 data from the industry’s trade body, the Association of Mutual Funds of India (Amfi), about 85% of inflows come only from the top 15 cities. Not content with the industry’s inability to attract investors in smaller towns, Sebi wants fund houses to go to the hinterland.
Sebi says that for inflows that come into a mutual fund from beyond “top 15 cities”, asset management companies (AMC) can charge an additional 30 basis points (bps) to the total expense ratio (TER) that it already charges. However, a minimum of 30% of the total inflows should come from the “beyond top 15” towns. A basis point is one-hundredth of a percentage point.
If, however, such inflows are less than 30%, then the additional TER would be awarded proportionately. For instance, if an MF scheme gets only 10% of inflows from “beyond top 15” cities, then the additional TER would be 10%, and so on.
We wait for Sebi’s final circular to come out, but as is the indication now, the 30 bps additional TER will be charged on the entire corpus. If, however, these “beyond top 15 cities” corpus moves out within a year, then only the additional TER would be ploughed back in the scheme.
New class of distributors
To ensure that MF schemes are made available to as many people as available, Sebi has now allowed a new class of distributors. Postal agents, retired government and bank officials, retired teachers will also be allowed to now sell MFs. Sebi will soon notify the type of such people who can sell MFs. However, anyone who wishes to become a MF distributor has to pass a MFs distributor certification exam that is conducted by the National Institute of Securities Markets (NISM). At the moment, NISM conducts just one exam for eligible MF distributors.
Sebi wants a variety of examination levels to be put in place that will enable different types of distributors eligible to sell different types of products. For instance, due to their age, retired officials who become distributors may neither be allowed to get themselves acquainted or sell risk-prone MF schemes like sectoral or thematic schemes or, say, arbitrage funds and so on . A separate, albeit low-level, examination will be held for them to make it easier to become a distributor. Fees charged by NISM as well as Amfi, which registers distributors, will also be reduced.