The ministry of finance is meeting representatives of the mutual fund industry today. This is the second such meeting within a fortnight, and apparently some imminent changes are on the cards.
We are not going to be present in the meeting because, well, we were not invited. However, this meeting gives me occasion to think about what this meeting should talk about and what we would have said if we were there in the meeting.
We would have said, firstly, that we represent the interests of the non-investors. That is, the millions of people whose interests would be best served by investing in mutual funds, but are not since they don’t invest in them (In a country with upwards of 6-7 crores in middle class, barely 1 crore invest in mutual funds (estimates)). A significant percentage of these people are young professionals in their twenties and thirties, who have just arrived at the dilemma of what to do with their savings. Almost all of them are online enabled – they rely on online banking, rarely visit the teller at the branch, shop at FlipKart and Yebhi, and have more friends in Facebook than in real life. Getting them into the fold of mutual fund investing should be a priority for the industry, and that’s what we would focus on.
With this market in mind, we would have proposed the following:
- Please do not bring back entry loads – that would be a regressive step, and will diminish the value of mutual fund investing in the eyes of the retail investor.
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Please relax KYC – if a person has completed a full-scale KYC with their bank and they are required to quote their PAN and bank details while investing mutual funds, there is no need for a separate KYC to invest in MF.
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Please accept online enrollments for mutual fund accounts – that would make it as easy and seamless to invest in MFs as buying a book in FlipKart.
Removing the entry barriers and hassles for mutual fund investors would go a long way in increasing retail participation among the young, upcoming, aspirational population that India is going to count on going forward for its economic growth. Making it easy for them to enter into the capital markets using the prudent investment vehicle that mutual funds are would be a win (for the investor) – win (for the industry) – win (for the economy) situation.
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Very true Srikant.
If there was entry load for MF, I would have never invested. Earlier some brokers used to compensate you for the entry load. An arrangement like that could work. It helps the distributor to make the investor think that he is getting some kind of discount! Anyways that is not an ethical practice.
I think fundsindia made the process of MF investing like buying a book! Earlier I used to sign numerous forms, cheques and withdrawal forms. Now it is just click-click-password and click!
The root cause of non-retail participation in MF by majority is beacuse you dont get a “certificate” for your investment! I work for an IT major and numerous people dont believe in MF or online FD! They still love the paper certificate. As far as I know mutual funds dont offer a paper certificate of deposit/units.
There is also no option to gift MF. I recently became an uncle and was looking for options to gift my new born nephew(90- days). The only option till now was KVP and thankfully that also is stopped. In a country where social bonds are stronger and secure than financial bonds, there should be an option to gift financial products. But in the name of money laundering we are preventing it.
Regarding KYC, it should be like either KYC on entry OR KYC on exit. KYC should be strict at the point where money enters/exits – Saving/Current Accounts are those point and KYC should be strict there!
We know how KYC is met by banks – The ATM withdrawal scam at federal bank is the prefect example how KYC happens in banks!
Very true Srikant.
If there was entry load for MF, I would have never invested. Earlier some brokers used to compensate you for the entry load. An arrangement like that could work. It helps the distributor to make the investor think that he is getting some kind of discount! Anyways that is not an ethical practice.
I think fundsindia made the process of MF investing like buying a book! Earlier I used to sign numerous forms, cheques and withdrawal forms. Now it is just click-click-password and click!
The root cause of non-retail participation in MF by majority is beacuse you dont get a “certificate” for your investment! I work for an IT major and numerous people dont believe in MF or online FD! They still love the paper certificate. As far as I know mutual funds dont offer a paper certificate of deposit/units.
There is also no option to gift MF. I recently became an uncle and was looking for options to gift my new born nephew(90- days). The only option till now was KVP and thankfully that also is stopped. In a country where social bonds are stronger and secure than financial bonds, there should be an option to gift financial products. But in the name of money laundering we are preventing it.
Regarding KYC, it should be like either KYC on entry OR KYC on exit. KYC should be strict at the point where money enters/exits – Saving/Current Accounts are those point and KYC should be strict there!
We know how KYC is met by banks – The ATM withdrawal scam at federal bank is the prefect example how KYC happens in banks!
The comment made on the KYC procedure in Federal Bank is not correct. The ATM fraud perpetrated by the thieves happened, because of the customer friendly feature of the software used in Federal Bank ATMs. Automatic reversal of withdrawals were being executed by the software, when the customer forgot to take cash from ATM. Since the machine was not counting the cash received back into the ATM, fraudster used that lacunae to fraud the bank. The KYC aspect of the person who has withdrawn cash from Federal Bank ATM is not supposed to be checked by the Bank, as the person was using the ATM card of another bank. I am working in Federal Bank. KYC procedure duplicated in mutual fund investments can be avoided as suggested by Shri. Srikanth.
The comment made on the KYC procedure in Federal Bank is not correct. The ATM fraud perpetrated by the thieves happened, because of the customer friendly feature of the software used in Federal Bank ATMs. Automatic reversal of withdrawals were being executed by the software, when the customer forgot to take cash from ATM. Since the machine was not counting the cash received back into the ATM, fraudster used that lacunae to fraud the bank. The KYC aspect of the person who has withdrawn cash from Federal Bank ATM is not supposed to be checked by the Bank, as the person was using the ATM card of another bank. I am working in Federal Bank. KYC procedure duplicated in mutual fund investments can be avoided as suggested by Shri. Srikanth.