Leave the advisory part for better servicing to investors, says Bhave

The Securities and Exchange Board of India (SEBI) asked the mutual fund industry to deliver better returns to investors by reducing cost.

“As professional fund managers, you should give better returns and reduce the costs to increase investors' returns. You are manufacturers of products. Advisory part for better servicing should be left to investors. They can decide how much would they pay for the advisory service if they want,” said C. B. Bhave, Chairman, SEBI, while addressing the 6th edition of Mutual Fund Summit 2010, organised by the Confederation of Indian Industry (CII).

In a move to limit mutual funds' expenses on distributors, the regulator had banned entry fee charged by mutual funds from August 2009.

On the SEBI's regulations on mutual funds, Mr. Bhave said the industry should understand what the investors wanted, what were the gaps in meeting demand and should identify the ways of filling gaps. “We should learn lessons from the recent global recession. We have seen that those financial institutions somehow run into troubles which have high incentive structures,” Mr. Bhave added.

“With the challenges lying ahead before the mutual fund industry, there is the need of definite government policy on mutual fund industry as by doing this, many things will fall in place.” said U. K. Sinha, Chairman, CII Mutual Fund Summit 2010, Chairman – CII National Committee on Mutual Funds and Chairman & Managing Director, UTI Asset Management Co. Ltd.

He said that the only legislation pertaining to the mutual funds was the UTI Act 1964 which was created with the objective of mobilising domestic and corporate savings.

The mutual fund industry is facing stiff competition from market-linked insurance products (ULIPs), which are similar to mutual fund products but are allowed to pay higher commissions to distributors. ULIPs offer returns based on the market value of their underlying securities and also provide an insurance cover.

Putting an end to a more than two-month-long dispute between two financial regulators, the government has ruled recently that the insurance regulator, Insurance Regulatory and Development Authority (IRDA) not the SEBI will be responsible for overseeing unit-linked insurance policies.

A joint report by CII-PwC was also released on ‘Indian mutual fund industry — towards 2015: sustaining inclusive growth-evolving business model' at the summit. According to the report despite increasing year-on-year AUM growth rate of 47 per cent in 2009-10, the mutual fund industry is facing several challenges.

More In: Industry | Business