Sinha for rationalisation of mutual fund fees

Securities and Exchange Board of India (SEBI) Chairman , U.K. Sinha on Tuesday reminded the mutual fund industry that consumer protection is one of the prime focus areas of the regulator and cost to investor will be important aspect of future course of action.

While insisting on rationalisation of professional fees and upfront commission, the capital market regulator urged the industry and Association of Mutual Funds of India (AMFI) to work on ways to rationalise these fees.

“India is among a few countries which charge a high upfront commission. Also, India is one of the few nations that charge both upfront and trail commissions. My sense is that this may not go on for long. We are observing. The industry should read the writing on the wall,” said Mr. Sinha while addressing the Indian Mutual Fund Summit, Confederation of Indian Industry (CII).

“I would urge the industry to work on ways to rationalise the upfront and trail commission and ways to justify the fees they charge from the customers,” Mr. Sinha added.

He also said that a committee of the Financial Stability and Development Council is already examining the issue of commissions and distribution charges in the mutual fund industry.

However, he said that the regulator does not want to get into the operational issues of fund houses at this stage. “At the moment, we may not step in to bring in discipline in this regard for two reasons. Firstly, it may be too harsh, and secondly, it may be difficult later on to do away with. But if this continues for long, we may be forced to take an action.”

Mr. Sinha said that the industry made an impressive growth by crossing the Assets Under Custody (AUM). The Indian mutual fund Industry over a period of a decade has crossed Rs.12 lakh crore of AUM out of which more than 30 per cent of these AUMs are from equity schemes. In the year 2014-15 the net inflows of equity AUMs have crossed Rs.71,000 crore from total inflows.

Mr. Sinha said that Foreign Portfolio Investors (FPIs) inflows were more volatile than the domestic flows. The domestic mutual fund industry has been able to bring in more net inflows.

He appreciated that that Indian mutual fund industry has helped in countering the volatility caused by the investments pattern of FPIs and brought the macroeconomic stability.

Mr Sinha mentioned that while the industry is at the peak of optimism it should think of medium to long-term measures for the sustainable growth of the industry. The industry should now focus on how equitably they are serving the requirements of the customers.

The regulator does not want to get into the operational issues of fund houses at this stage for two reasons

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