Remember the Date: 1st August 2009.
Action: AMFI abolishes Entry loads on all mutual funds
Purpose: to reduce costs of transacting in MF’s.
Well the move was intended to do benefit to the common investor but lacked proper implementation and detailed thought process. Earlier there were lakhs of brokers, banks, I.F.A.’s, etc, who were making distribution commission by selling mutual funds. Now the entire money invested would get designated Units without any amount being deducted as entry load.
Do we all remember, AMFI sometime back had also allowed people going directly to the fund house to be waived off the Entry load. So what was the need of totally abolishing the entry load when it was the bread & butter for the millions of independent advisers, banks, etc. The answer is only available with AMFI. The ideology is to weaken the MF’s and strengthen the Insurance Industry, which still runs on high costs which are going unnoticed and people have become more aggressive in selling insurance products to make up for the income loss in MF sales. Although one needs to understand that Insurance is a long term commitment which is cheaper in the long run but we all know how is it sold as a 3 year FD or at best as a 5 year investment.
Most of the banks are pressurizing their employees to sell more insurance products and the burden is therefore back onto the client. The banks have also adapted to new modes of charging for mutual fund transactions from the clients. Different banks have different cost structures and in some cases the transactions are more expensive than what they were earlier.
It is a total defeat of the objective of AMFI and fails to address the real problem. i believe each step of AMFI should be aimed at strengthening the MF industry and also to benefit the customer, which is not the real scenario out there. A variable costing structure would have helped to curtail the mis-selling in the MF industry. Today Banks / brokers have the liberty of charging anything and there are zillions of investors who dont even know what is right or wrong for them.
In the coming days i believe there will be changes to the rule as otherwise a lot of GENUINE ADVISERS will leave this profession for the lack of Earnings and future growth. Banks can still sell other products like Insurance, Mortgages, cards, etc and survive but what about people who were only flourishing on Investment sales??
i will continue this again on the basis of feedback or queries that i receive.
Warm Regards
Anil Budhraja
