The direct fight that both Kamal Haasan and Sebi face

Distributors feel that if investors get a choice to go direct, why will they invest through them.
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First Published: Wed, Jan 09 2013. 08 21 PM IST
Shyamal Banerjee/Mint
Shyamal Banerjee/Mint
The drama over the “direct” plan introduced by asset management companies (AMCs) with effect from 1 January 2013 seems to be playing in a different form in actor-director Kamal Haasan’s backyard also.
After announcing his decision to release the much-awaited next release Vishwaroopam—which he wrote, directed, co-produced and also acted in—the release date is now postponed. Why?
All hell broke loose when Haasan decided to release his movie on the direct-to-home (DTH) platform (on 10 January) a day before the movie was slated for release in theatres (11 January). Apparently fed-up with the piracy menace—it is possible to get a decent quality pirated DVD of a brand new release within a day of its theatrical release in Mumbai and a good quality subtitled print if you wait for a few days—Haasan decided to reach out to his audience, the end consumer, directly through the DTH platform (though the DTH platform is sort of a middleman too). The positive outcome here was that instead of paying high ticket prices to watch the movie in a multiplex, you could have watched it in the comfort of your own home with friends and family; at a rate of about Rs.1,000 for Tamil version and about Rs.500 for the Hindi version. Another side of this story is that the DTH providers persuaded Haasan to release his film through their platform to popularize the medium.
Last year, the capital markets regulator Securities and Exchange Board of India (Sebi), introduced a “direct” plan in all mutual fund (MF) schemes. Introduced with effect from 1 January, this plan now solicits investments from those who wish to invest directly in mutual funds (MFs). The regular plan—or the plan that was in existence so far—will continue and is made available through distributors. A direct plan will have a lower expense ratio and therefore a higher net asset value (NAV). Since the direct plan will not be available through distributors, it will not have distributor’s commission embedded in it, and therefore will sport a much lower expense ratio. Understandably, distributors—like the exhibitors (or cinema halls in movie parlance)—were upset because they felt that if investors get a choice to go direct (at a lower cost), why will they invest through a distributor. A worry, which I personally think, is grossly exaggerated because of reasons that I have covered in few of my past columns.
But Sebi has stood its ground and the direct plan became a reality on 1 January 2013. Though it’s too soon in the day to ascertain the difference between the NAVs of normal and direct plans, the first few days have been confusing for both investors as well as distributors tracking the direct picture. Typically, the difference in the NAVs between the direct plan and the normal plan should turn out to be about 0.5% to 0.8%, when annualized. We take an annualized figure here because the total expense ratio (TER; the maximum that an equity fund can charge is about 3% after the recent hikes allowed by Sebi regarding penetration beyond the “top 15 cities” and “exit load charges”) is an annualized figure too.
For instance, some schemes have shown a difference of as high as 14% to even about 90% between the NAVs of their direct and normal plans. These differences were as on 4 January. Some other direct plans had a lower NAV than their normal plans. Some fund houses we spoke to had no idea of how such a big difference could come and most are of the view that if we wait for some more days to a few weeks, these differences would get ironed out. I am also told that some fund houses uploaded wrong NAVs on a few days, which is also possibly why these anomalies are seen.
Another area of confusion was whether fund houses will accept application forms with a distributor code stamped on it, under the direct mode. A fund house or two did try and accept such forms because they felt that if the financial adviser charges fees to clients and, in turn, recommends a cheaper (direct) plan, it’s a win-win situation for both clients and financial planners. Further, with the said application form getting tagged to his distributor code, the financial adviser can then service the client on that folio, like getting a duplicate account statement, making inquiries with the fund houses on behalf of clients for issues such as dividend receipts, redemptions, systematic investment plans and so on. Clients get a cheaper plan and pay fees to their financial adviser.
But recently, the Association of Mutual Funds of India (Amfi; the MF industry’s trade body) wrote to all fund houses advising them to ignore the distributor code if it appears on a direct mode application form. It cited the Sebi circular (issued in September announcing the direct plan, among other MF measures) that said, “Mutual funds/AMCs shall provide a separate plan for direct investments, i.e., investments not routed through a distributor in existing as well as new schemes.”
As we try and grasp the ramifications of yet another complexity thrust upon us by the MF industry—in addition to the new “know-your-customer” norms last year—but presumably for our own good, how we wish we could have uncluttered our minds and watched Vishwaroopam this weekend for relief.
After all, Kamal Haasan seems to be thinking like Sebi chief U.K. Sinha. Or is it the other way around?
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First Published: Wed, Jan 09 2013. 08 21 PM IST
More Topics: Fundsgate | Mutual funds | Equity funds | Sebi | Amfi |
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