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The wording of the proposed regulation on TER applicable forswitches is very loose. Even if we get an explicit clarification that STPs areexempt, it still can create huge challenges for MFDs who rebalance clientportfolios periodically as part of asset allocation monitoring. Each time yourebalance by a switch from debt to equity, the MFD’s commission will be basedon debt TERs while the AMC will get equity TER benefit. While SEBI is acting tocurb churn, an unintended consequence is to disincentivize portfoliorebalancing.
Definition of churn must be limited within an asset class.Moving across asset classes is asset allocation, not churn. If churn is indeedlimited within an asset class, the proposed uniform TER at asset class levelwill anyway take away the arbitrage opportunity across schemes and thereforechurn. So why then do we need a separate anti-churn regulation for switches?
All-inclusive TER which includes trxn execution costs (stockbroking) can act as a hurdle for nimble fund managers who are aligned with thenew realities of shorter and sharper market cycles and sector rotation as theirnimble strategy driven transaction costs can have a direct P&L impact ontheir AMCs. Some of the best performing funds are very nimble – will they nowbecome more circumspect as they start evaluating cost-benefit of every trade?
Since hybrid funds’ TERs will now depend on level of equityexposure, will fund houses want to tweak their BAF models to allocate higher toequity in a bid to claim higher TER? Are we likely to see hybrids become morerisky in an effort to protect margins?
While most the principles expressed by SEBI in its consultative paper are undisputable, the one aspect worth reconsidering is wading into the territory of how much profit is enough for AMCs. This is an operating leverage driven business – higher the scale, higher the profitability. To suggest that AMC profits have grown too rapidly and that they must therefore part with some of that to their investors is perhaps looking at the issue from the wrong end. The question to be asked is are Indian mutual fund investors paying too high a cost – vs other financial products in India and vs mutual fund investors in other countries. If answers to both are negative, is the product really so costly that you must cut operating leverage in the industry?
What Mr. Jhaveri apprehended becomes reality, after moderation on the Consultation paper, actually sees the light of the Day then it is indeed a worry for the client -focus MFDs as Rebalancing between Asset classes is a future necessity. The so-called Advisor Alpha may then be things of the past. No MFD would then switch between Asset classes depending on the market scenario or Investors overall risk appetite or Goal achievement. Even after acknowledging the fact that Churn actually exists due to this Big-Small AMC divide as one goes for smaller ones lured by higher commission payouts than the former. Also the B-30 incentive could be looked at from both investors and Distributor pin codes e.g. if some distributors from T30 locations bring investors from B30 locations they can get B30 commission only once for the FIRST investment made by the B30 investor . Further investments even by B30 investors can be treated as per T30 rates.
In Indian financial mkt scenerio the ter seems not glaringly higher than their mkt available peer group implicit charges
Distributor should get B30 incentive on atleast sip book for the first year then only they can survive otherwise it is very difficult to do the business. SEBI should also consider small distributors income they should get paid fairly for their hard work atleast 2% should be minimum trail to distributor whose aum is below 10 crores other wise it is very tough to survive.
What ever changes sebi is doing is Just killing the distribution network who has done all their hard work to bring the aum to 40 lakhs now sebi is targeting the group and why should distributor paid much afterall 2.5% expense which is very lowest in any business model. I dont understand the sebi chairman problem on distribution network why she is putting all blame on distributors saying they are doing wrong business and reducing income with out proper knowledge is it sebi doing right practice by influencing the distributers life by reducing income suddenly and making them suffer for getting payed only half of the commission what they actually got earlier.
SEBI is ignoring somany frauds happening in IEPF department no one responds properly for months together and looting the public money keeping in their account and not responding even after legal holders of the stocks request in all the ways they have asked.
In Baroda city there are maximum number of our clients whose salary in between 20-30K , my business is totally came from sips 2K,3K so its very difficult to sustain in market after TER cut.
SEBI HAS NO WORK OTHER THAN TER
Products marked to market need a lot of attention and actions like sw/stp for reaping commensurate benifits from the shares and securities floated in the mkt (*) amcs are striving hard for achieving mkt dependent ,still high returns in comparision with available other mkt instruments for the customers (*) in Indian scenerio main beneficiary of mf investment is the customers at the lower expenses (*) in order to keep fund size of schemes within some manageable limit , highest ceiling may be devised by which the customers may also be restricted to put money in some net company focused schemes , with rank and star marks (*) this will compel the amcs to devised varieties of products catering the needs of investors (*) amcs business has become lucrative and there happens influx of new amc frequently (*) people with more talent and competency will certainly entitled for glaring earnings in the country context (*) in global context the income profile of Indian companies engaged in mf business ,if found in epitomic position ,then undoubtedly the regulator will apply scythe thereby (*) MONEY COMES FROM THE INVESTORS AND MAIN BENEFITS WILL PASS ON TO THEM BUT OTHER SMALL FRY LIKE INDIVIDUAL MFD SHOULD NOT BE SQUIZED AND SQUIZED AND PUSHED out of the scenerio(*) they are social entities also (*) individual MFD are to combat institutional distributors like bank ,net app parties apart from the outward push of " DIRECT CODE "(*) ALL REGULATORY PRESSURES AND PUSHES MAY NOT UNREASONABLY PASSED DOWN TO THE MFD WHO ARE SOMEHOW STRIVING IN THE COMPETITIVE ERA
Excellent clarity on the disastrous repercussions of the TER proposed regulation. Hope it reaches the right ears so that this disaster is avoided. The honest efforts of MFDs in proper asset allocation will be defeated and many may leave the industry.
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