The basic problem in getting new client is that the cost of acquiring a new client is huge and there is no remuneration for those distriutors who get new set of clients. A simple solution by Rohit Kumar of giving Rs. 2 per client per month, will surely motivate many distributors to bring new clients.

Congratulations! Your article was beautifully worded and it is more powerful than any harthals that the politicians declare from time to time. Now let me do my part. The experts who made the Mutual fund act way back in 1996 ,envisaged an automatic growth for the MF industry .A properly guide lined law. Actually it was an example of making a law. They have proved right. The MF industry showed a tremendous growth with in a short span of time from 6000 crore of AUM (asset under management) to 700000 crore of AUM. Still a very small share of the potential growth Suddenly somebody pulled that nail in 2008.We know the result. The journey is out of rail. This nail is nothing other than the very nominal remuneration of the IFA who go out to TEACH the adult population who has never heard of mutual fund. (Remember the first year commission for insurance agents is more than 35% of the first year premium. In Kerala Finance Minister Respected K M Mani has recommended more than 8 percent

Yes, I fully agree with the views expressed by Mr. Muzumdar and endorse the same with whole heart. Why rehulator SEBI is unable to understand it is really a mystry? They have forgotten their prime responsibility to strengthen the MF industry and help in their spread among Indian citizens. They are out to destroy & damage IFAs and to promote corporate financial distributors only.

Congratulations and thank you for putting things so logically and beautifully for the whole ifa community. In built compensation for the intermediaries worked very well for so many years. Why penalise and victimise the whole community for some black sheep ( prevailing in all trades and professions ). Nobody gets anything for free.Then why the investor ? Investors,Amc"s and intermediaries all have to co-exist in the market and for that Regulators need to take constructive and positive steps which benefits one and all.A win-win situation as put forward by you should definitely be looked into by the authorities for the benefit of one and all at the earliest. Thanking you once again and looking forward to reading such promising articles in near future.

I too completely agree with Mr.Pranav. I wish the concerned / authorities, read / understand the article by heart, every part of it. Then work on it to resolve the issue.

i think advisors dont have faith in themselves. is it only the investment? the quality of fund, risk taken etc. also way of investment i.e. one time or by way of STP,flex STP is an art. Also when to redeem, how to redeem is also important. Mirror portfolio by investor us a FEAR. & even if a person is doing the same then does he qualify to be your client?? have faith in yourself & accept the new situation. This is the time you should have identify who values your advice & service & not the kick backs.. search for new clients. And yes the new platform can be the best solution. Today also there are people charging 1.5% in cash to lumpsum charges of 500 for a year, pl padon me for the spel mistake as my only one hand is working, but i found it important...

Pranav,very well articulated...The problem and the solution....Beautifully put...

This is the correct diagnosis of the problem. SEBI, AMFI, AMCs should realize this and take corrective measures at the earliest.Thanks to Sri Muzumdar for the correct analysis of the prevailing situation AND giving the right solution to the problem.But i don't think SEBI, AMFI,IRDA, and Pension Authority of India are really interested in the growth of finance sector. They are not in a position to catch hold of culprits and are bent upon to kill the finance sector as a whole.

Entry load can stop direct investments or can increase it? All those favouring entry load will also agree that entry load will definitely increase % of direct investments. Sebi will never allow charging load on direct investments. When queston of money comes everybody tries to save it. If a client wants to invest Rs 5 lakhs he can take the advise from distributors, then he may invest directly. He can invest Rs 50000/- through the distributor & remaining Rs 450000/- directly. This entry load will only encourage direct investments. Nobody of us is interested in encouraging direct Investments. Client investing Rs 50000/- can also invest directly, to save entry load. But if the same investment is done through distributor without any entry load, clients may not go direct & increase expenses. We all are interested in converting majority of our efforts in business. But due to load many of our efforts can be converted into direct investments.

Totally agree with his views and support it. Unless the size of the market is increased, no one will benefit - not the distributor, not the AMC, nor the economy and definitely not the investor himself.

This is first time i am listening an sensible & true comments for the benefit of the industry,even some AMCs are not realising this fact that if they don`t have new investors the survival on old(which r on decline as well) only will not last long & hence current profitability may not ensure tommorow`s existence.I congratulate Mr.Pranab for bringing in entire matter of loads to ensure industry`s good health & growth.

Various steps taken by SEBI in mutual fund industry in last 2-3 years has deprived the small man to have the fruits of country's growth and prodress.

Well articulated Pranav. There is a lot we all have to learn. Accept our mistakes make amendments and move forward -- agree with that wholeheartedly.

I am agree with Mr. Pranav. Basically entry load/upfront commission is not the real problem of the industry but the mala-fide churning is the main issue. SEBI, instead of taking any strong step to curb the same banned the entry load . Actually churning must be banned/demotivated & a decent level of revenue should be there so that MF industry can grow in real sense.

Good article, AS it is said JAB JAGO TAB SVERA, likewise IF SEBI , AMC , AMFI puting aside their EGO and think the other ways to increase mobilistion in MF and help IFA to improve their earning for growth of this industry it will be better for investor and capital market

I totally agree with Mr.Pranav. Basically there is no proper awareness about MF in India. Market is not supporting for small IFA'S. cost of living is increasing but IFA's margin is decreasing.... As SEBI made earlier if the investor invest directly then it should be no load, if the investor seeking advice from any advisor then LOAD should be charged.

What is being said above is correct but the problem is this we are still talking about entry loads coming back when we all know that the regulator will never admit that abolishing it in the first place was a mistake and they will NEVER bring back ENTRY LOAD, it may come as a transaction charge or something else but loads are not coming back, I think the bigger issue today is not load but whatever is being paid as upfront, call it commission, call it brokerage call it trail in advance that is also going, most of the big AMC,s have already taken a decision to do away with it, its only a matter of time before this happens, then let us see what happens to this industry as a whole, the only thing that will bring back the investor to the market is when the market starts performing that will happen when the Govt. wakes up from its slumber which it will do only in 2014 when elections come up.

Any mass scale products sold by any company any where in the world is through distributors, retails stores, agents, franchises etc. When SEBI called AMCs 3yrs back on the question of abolishing entry load, were all AMCs sleeping to put forward this point to SEBI that they cannot recruit lacs of employees to directly market the MFs We as financial planners community feel that more than the SEBI which is a regulating body, AMCs are responsible for the massive irreversible debacle caused not only to the economy of our country but to the IFAs, distributors, financial planners etc without whom they cannot sell MFs in large nos. We suggest that AMCs form a private body like "Association of Mutual funds" in India different from the present AMFI and come together to discuss mutually beneficial solution. Every industry has these private associations unlike ACMA (automotive components manufacturers association) ASPA (alloy steel producers association) PTM (precision tubes manufacturers)etc.

I Absolutely agree with Mr. Pranav. He said it very nicely. When SEBI has started no load for "DIRECT" Investors, Why subsequently banned the Entry Load for all transactions? Clearly, SEBI has made mistake and it is better if it corrects the same at the earliest.

Hi Vijay, I want to be frank. Under the pretext of "understanding" the reality we dishing out is completely incorrect. New investors are the easiest to teach a new way of compensating advisors. It is really the old investors who will find it difficult to change their ways. The point is not expanding MFs. The point is that we need to convince ourselves before we convince the public that as advisors we really want to help you with your finances.

Very Nicely articulated sir. The Basic Aim of the regulator & the AMCs should be to expand the horizon of the Investing public. Also Incremental Trails could be a useful way to incentivize the long term asstes.

Very well said Pranab. But , who is listning? Entry loads should have been removed from switching and that would have taken care of the malady of churning. Best regards

Very true.So aptly put. Let's hope the regulators gives a thought.

to the point. I agree with pranab that industry is missing the whole point. As rightly said penetration is vital which invloves cost and who pays for it?

superb article ...nothing is sold in the world without incentivising the middleman ..its an open secret how can the mf industry be different ? what did SEBI think before abolishing the entry load ? that investors are queuing up for signing MFs ? for getting a new investor min cost a distributor incurs is Rs 500 - 750 , 3 visits to client ,then two visits to the AMC for KYC and one visit for PAN ...a new investor may not invest more than RS 2000/ and that too even after all the initial education( 3 hrs ), and inputs may still stop the SIP after 5 yrs ...so the distributor neither gets a trail or is able to build up on the business most of the investors start ,recheck after 4-5 yrs..if the fund has done well good,if not then he goes back to real estate,gold.problem is that even clients have become more wanting...they expect min 13-15 %(after pre-education series 1, 2 and 3 and ongoing vide mails)if that does not come through then they dont see any reason to continue doing

hey pranab... to the point.. & to the core of the issue.. & simply what we small ifa's were facing to grow are AMU'S.. THANKS A LOT BUDDY..

very valid thought process. our friend says Bite the Bullet... Babu

Mr Muzumdar is correct in the basic premise that AMC has to pay distributor if reach of mutual funds is to increase. However we need to understand also that huge churning by a set of distributors WAS reality when upfront was in exsitance. I think correct solution is higher fund management charges & high trail say starting at 1% & increasing to 1.5% with longetivity of assets. This can be accomapanied by "HNI plans" in each scheme with minimum investment of say Rs 10 Lac which can have lower fund management charges & lower trail payouts to distributors.

I agree fully.

The article expressed my feelings in a better manner and in a logical way. Thanks for publishing the article

Mutual fund to masses are for equity. IFAs would have no complains, investors would have no complains and AMCs would have no complains even if there was 0 entry load had the market been at 25000. The problem is that past 5 years equity as asset class has not delivered anything. I do not see investor investing directly in stock market. As distributors I would have had larger AUM, no stoppage of sips, investors would have made money and this would have helped everybody in the industry. I do not see any merit in talking about entry load unless equity has delivered. Look at amc gold schemes. Investors have come in large numbers and aum has gone up 5 times in such scheme over last 3 years. Here Gold delivered. ONLY WAY INVESTORS WOULD GET IN IS AFTER SEEING THE PERFORMANCE OF EQUITY. LET REGULATOR DO WHAT THEY CAN BUT AS LONG AS EQUITY CLASS DOES NOT SELL YOU WOULD SEE INVESTORS SHY.

This is one of the best articulated article on the subject. I fully agree with the author and his views. It is time we dump our EGOs and accept plain facts and revert to the AMC payment mechanism, where the distributors had minimal problems. The checks that need to be place is to restrict BOGUS incentive schemes and DEBIT note payments to promote. Schemes need to be monitored and expected to deliver atleast better than BANK returns. Else why would an investor speculate with his money if majority schemes do not perform ..?? So checks and balances need to be brought into the functioning of AMCs rather than regulating distributors and increasing the paperwork for the distributors, majority of whom do not even get any sizable remuneration. Reforms put in through the wrong end ...

From the day Entry Load was banned I have strongly felt that it is a huge blunder and mistake that SEBI is making and it gives me no vicarious pleasure to see I have been proved right. The crying need for the industry today as very aptly put by Pranav is how to increase penetration and I would go a step further and say mobilisation as well from the existing investor base. An extremely simple and obvious way to increase penetration as well as mobilisation to my mind is to ensure ELSS Mutual Funds remain eligible in the new Direct Tax Code and in fact the limit of Rs.1 lakh (which exists since the past almost 10 years) is increased keeping in mind the galloping inflation. It is a no-brainer that the Indian mindset favours any incentive to invest - as compared to the other available options of investing under Section 80C of the Income Tax Act, 1961 I cannot find any option that compares favourably with ELSS Mutual Funds over the long term.

I also favor only a in-built pricing. The Distributor have to survive in the current economic condition to serve the investor. I think you will accept with me that it requires minimum Rs 50,000/- for a middle class family with two kids to survive in a metro city in India. In the case of a IFA he had to also take care of his office maintenance. In recent past the industry is only discussing and bringing changes to affect the earnings of a IFA and had never discussed anything in the interest of the investor’s requirement. IFA can only concentrate more in his business in bringing more and more new investor when his basics is taken care. We or fighting for our survival for the past 4 years.

I totally agree by the views expressed by Mr Mazumdar.