The Securities and Exchange Board of India (SEBI) Chairman, U. K. Sinha, on Wednesday stressed the need for more disclosures and regulation in a non-disruptive manner in the mutual fund industry and asked the industry to simplify the initial public offering (IPO) process.
“SEBI is looking into distributor regulation, but not in a disruptive manner. It will be for limited number of large distributor and will be a disclosure-based system. If we set the rules of games and apply it uniformly, it will help the industry,” Mr. Sinha said. He was speaking at the seventh edition of the national “CII Mutual Fund Summit 2011”, with the theme “Indian mutual fund industry: distribution spectrum in a changing business environment,” a flagship event of Confederation of Indian Industry (CII).
Despite seeking more regulation, the SEBI chief also felt that: “with the number of folios declining and small town sales reducing, there is a need to incentivise the distributor. Unless incentives are given to distributors, it will be difficult to increase penetration of the industry and help its potential for transferring gains of the economy to the remote corners of the country and its populace”.
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Mr. Sinha gave some pointers to the industry when he talked about the global trends where pension-based mutual fund plans are being chosen more and more by the general populace.
Explaining the measures taken by the SEBI, Mr. Sinha said, “The mandate for SEBI is three fold: to protect the interests of investors, to develop the market and to regulate the market. In our view, these three are not contradictory and we work equally towards all three mandates. It is, hence, our motive to increase transparency, bring about a good level of disclosure, have uniform KYC (Know Your Customer) for all activities within the capital market, bring uniformity in the use of load balances, enhance liquidity for faulty liquidities, put up a SEBI complaint redressal system and deal with wrong or unauthorised news by intermediaries severely”.
He talked about simplifying the IPO process and ensuring that disclosures made during an IPO were made simpler and more intelligible for the general populace to understand. He also explained about the removal of irritants for someone entering the market and introducing more disclosures from the industry.
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Milind Barve, Chairman, CII Mutual Fund Summit 2011, and Managing Director, HDFC Asset Management Co., talked about two major opportunities for the mutual fund industry. “Asset management is the right place to be in if one has the patience to build on for a few years. The ones with patience will reap rich benefits from it. The other opportunity is managing international funds that are flowing into the country in billions. How can we stay away from advising this international money?” he asked.
About the challenges for the industry, he said financial literacy even in urban centres is quite low. “The need is to increase the nation's financial literacy. That can be done only by providing simplicity. The need is to create a multi-channel awareness for financial products. Second, the products need to be made simple so that the common man understands. The way to increase penetration in the country is by selling products that are simple, diversified equities. The moment you make a product complicated, you lose the customer.” He gave the example of the tremendous success of SIPs (systematic investment plans).
The SEBI Chief released a CII and PwC exclusive report on the mutual fund sector, titled ‘Indian mutual fund industry: distribution spectrum and the changing business environment' during the summit. The report discusses distribution as one of the most crucial challenges faced by the industry while seeking to explore possible solutions to establish a sustainable distribution network. It also highlights the role played by technology in taking the growth of the industry to the next level.