|
There is a lot of excitement in the market about Sensex making new highs, there are lot of expectations of economic growth and therefore there is a lot of anticipation that retail investors will come in a big way into mutual funds. Lot of effort is being put in investor education with SEBI's directive on spending on this activity, and there is an expectation that this will bring in huge numbers of retail investors. Yet, the reality on ground is that we are not really seeing retail investors flocking towards mutual funds, despite all these factors.
Operational issues are at the core of investor apathy towards mutual funds
I am writing this on behalf of the entire IFA fraternity, to highlight to the regulators, to AMFI and to AMC CEOs why we are not seeing that kind of retail participation that all the industry leaders expect. We truly welcome SEBI's investor education thrust, we welcome SEBI's long term mutual funds policy, we welcome the regulator's efforts to grow the industry. But, the biggest hurdle that is being ignored by the industry, and which is seriously coming in the way of retail participation is the operational hurdles that the industry puts in front of investors and distributors. This, to my mind, is the biggest reason that keeps retail investors away from a wonderful product, and this continues to be the aspect that AMCs continue to neglect most.
Some may argue otherwise but I strongly believe that one of the major reasons for MF industry's poor show and low growth is the complexity of its services and transaction processes. For any product or service, convenience is the most important aspect. But, this is the area that the MF industry has consistently ignored. While there has been a lot of talk about standardizing all the processes and policies followed by all AMCs, we still see a lot of processes which are very specific to few selected AMCs. While there is no point in pin-pointing any AMC for a specific process that they follow, we as an IFA community have really been facing a hard time ensuring that every AMC's policies are taken care of at the time of transacting.
Here are some specific issues - just a drop in the pond
I am going to list some issues below which we and our investors face on a day to day basis. Please understand this list is just a drop in the pond when it comes to AMCs having their specific processes. The issues that our investors face as mentioned below has led to lack of confidence and lesser investments.
Change of Bank - We understand that changing of a bank account in an folio can be a tedious task specially when one investor has multiple AMCs in his portfolio. But life could have been easy provided there was just one standard process for all AMCs. While some AMCs insist on asking for old bank records there are some who ask of the change of bank even if the bank itself changes the account number from previously 4 digits to now 8 to 13 digits. There have been instances when the banks too don't have old records of the investor and hence we face rejections/delay for redeeming units. Also we don't understand the concept of cooling period of 10 days. It's a sheer waste of time and not everyone is willing to wait for 10 days for their funds to be released. This shakes an investor's confidence in the product.
Difference in Name - India is a very diverse country and with so much diversity also comes issues with the way we call a person. Let me give you an example : Mr Mahesh may be called as Mahesh Bhai in Gujarat and Mahesh Babu in West Bengal. There are chances that his bank name and his investment name might not be same because we are used to adding prefixes and suffixes which are absolutely not required. Just because of this when a retail investor learns that his money cannot be redeemed because of name mismatch how do you expect him to invest again? Specially in case of death of the unit holder their dependents/nominees face a hard time redeeming money because of such minor changes in the names.
Minor To Major - At the time of redemption by a minor after turning major many AMCs ask us for PAN card and KYC details. Please understand that an 18 year old might not need a PAN card immediately upon attaining majority but he would definitely require the money for his higher education. This has led to fall in a lot of investments under minor category as the IFA community has stopped advising this. After being given standard procedures by SEBI, why do we see some AMCs not following them and still adopting their own policies?
Banker's Attestation - I completely differ from this concept of going to the Bank Manager for so many queries of MF and get his attestation. It clearly shows that you are only interested in developing banks and not the IFA category. By sending our clients to banks who also sell the same products you are only creating an unhealthy competition for us. There have been many instances where our investors have come back to us saying that bankers have asked them to buy funds/policies from bank if they do attestation. Believe me when I say this but our investors are really facing a hard time with this. There has to be a suitable solution for cases where signatures have been changed or mis-matched. Going to the banker is only making it worse for the investor and us.
Know your Client (KYC) - There was a time when a bio-metric test and thumb impression process was also done for MF investors as a part of the process of KYC. Till now there has been a change in the KYC for at least 5 times and every time there is a change we have to go back to our investors with new forms. To add to this the AMCs expect us to remember if the KYC was done at CVL, NDML, DOTEX etc. because once it is updated there it cannot be updated anywhere. I was asked this question from one of my investors : "why do they have multiple depositories for KYCs and why can't they combine everything?" I request our AMC seniors to help me answer the question and solve this issue of changing and re-changing KYC norms and formats as well as multiple depositories.
Common Application and Transaction Form - This is another big setback for the industry. On an average IFAs have been seen doing business with 8-10 AMCs at any point of time. Each AMC has an application form and transaction form which we as IFAs have to fill for our investors. Multiple forms has led to a lot of confusion. While we are aware that you are working on the MF Utility platform which we have been waiting for since last few years now, I request AMFI to ask AMC's to follow a standard form so that our investors are free to invest wherever they wish too. As I understand it, SEBI has also come out with guidelines for common forms and processes. When even the regulator is asking for this, why is the industry still dragging its feet on this issue?
Common Account Statements - Not all transactions are shown in the Common Account statements that have been started by CAMS. This has led to a lot of mistrust in many investors as they come running to us with incomplete statements and ask us for explanation.
Income Tax Notice - There is a clear partiality between bank deposits and MF investments. While more than Rs.2 lakh purchases in Bank FDs go completely un-noticed, a similar purchase in any MF scheme means the investor is most likely to get an income tax notice. This is true for purchases as well as switches. And, to compound the issue, if the investment was done in joint names, all joint holders get IT notices. Please understand such notices every time there is a purchase of more than 2 lakhs is absolutely annoying and has led to investors either limiting their investments to less than 2 lakhs or completely exiting MFs. Despite having all the checks and measures to ensure that money that flows in MFs is legal, and despite having stringent third party payment rules, why do our investors keep getting I.T notices on every purchase of 2 lakhs or more? This is clearly stopping many investors from taking more exposure to MFs.
Investor education efforts will be futile, until these issues are resolved
Like I said earlier these are just few issues which I chose to mention here. There are a lot of processes and queries that retail investors face at the time of purchase/redemption which has led to lack of interest from so many of them. I firmly believe that unless these above question/issues are answered or resolved, the retail investor will continue to shy away from mutual funds. No matter how much education we provide to all of them, but if we don't provide them ease of transacting and trust in standard policies, they will continue to shy away from mutual funds.
The best and at the same time the worst product
I am in the business of distributing financial instruments from last 15 years and I hate to say this that MFs which are the best form of investment are also the toughest form of investment. No doubt we have seen things changing for good in this industry but for some reason, giving convenience to the investor continues to be low on the priority.
We have a long term policy from the regulator for mutual funds. It is only when investor convenience becomes a central theme within this long term policy, can we expect the kind of mass retail participation that we all believe this product deserves.
Give the investor what he deserves - a hassle free investing experience
Finally, all of us in this business want to see more and more retail investors invest in mutual funds. AMCs and distributors are equally interested in growth of this business. Why can't AMC seniors get together and work together to make the investing experience more convenient for investors? Why is it taking years to come up with standardized processes and forms? How difficult is this? What is the point of making so many efforts in the direction of education, when we are not willing to spend even a fraction of that time on offering convenience? My sincere appeal to AMC CEOs, to AMFI and to SEBI is to stop ignoring operational issues and deal with them once and for all. We all say that we must put the customer in the center of everything we do. I don't think we are putting the customer at the centre of the investing experience we are providing him or her. Please take this up as a priority, and give the investor uniform, simple and convenient processes. He deserves it.
Share this article
|
Now that a super-stable Government is in office and the Sensex is hitting new highs, are we seeing retail investors flocking towards mutual funds in droves? Not yet, is the general refrain from most retail oriented distributors. Jigneshbhai says the biggest reason that's keeping retail investors away from mutual funds is not about market levels or market expectations - it is a poor investment experience that the industry is giving the investor through inconvenient and unnecessarily diverse operational procedures adopted by each fund house. Read on to get a ground level reality check on what's really keeping investors away from a product that Jigneshbhai says is the best product for a retail investor and yet the toughest product. Jigneshbhai has penned these thoughts with a fervent hope that AMC CEOs and AMFI will take note of these ground realities and address them speedily. Doing this, will only give the investor what he deserves - a hassle free investing experience.
