'SEBI move to structurally alter nature of MF industry'

The market regulator granted asset management companies (AMCs) flexibility on fees by allowing them to charge up to 30 basis points more as total expense ratio (TER) across schemes from inflows from smaller towns beyond the top 15 cities.

S Ramesh, Joint Managing Director of Kotak Investment Banking and Puneet Chaddha CEO of HSBC AMC welcome this move. S Ramesh is of the view that this is expected to favour the long-term investor as against the short-term investor. "It's a directional move from a market perspective, and to that extent, it will be seen as positive. But we will have to wait and see how this plays out. I think you have to give some time for the intermediaries, the mutual funds and the investors to absorb this and let's wait and see. I am optimistic," added Ramesh.

Echoing Ramesh's view, Chaddha said, "My first reaction is one of optimism. I am impressed that these measures that are actually long-term measures. These are not measures that are going to result in an immediate fillip to the stock market or to investor interest. But it will structurally alter the nature of the mutual fund industry and align the interest of all the stakeholders in the system, which will eventually benefit everybody including the end investors."

Here is the edited transcript of the interview on CNBC-TV18.

Q: It is very surprising that Securities and Exchange Board of India (SEBI) has allowed higher charges when you service the tier II cities. As it is, it's a space where financial inclusion is just working its way. In a market like this, it is difficult to get investors to stay put. Do you think mutual funds will even use this to compensate or to charge more in tier two cities? Wouldn't that be a deterrent to financial inclusion?

Ramesh: This is the popular Bharat versus India story. If you have to deepen investor participation in Indian markets, you have the direct route and the mutual fund route. I think there is money available in tier two, rural and other places and you have to make a beginning somewhere. So somewhere I see nobility in this. It's a beginning and there is money available; there is fairly good savings but very little of that comes into the market. So I would view this in that perspective.

Q: Another positive is the fact that the exit load will now be credited back to the mutual fund account. According to you, how encouraging is that for an investor and how much do you think it could push up the net asset value (NAV) of the scheme?

Ramesh: I would not comment on the NAV but the way we analyzed it, our first impression is it in favour of the long-term investor as against the short-term investor. So, it's a directional move from a market perspective, and to that extent, it will be seen as positive. But we will have to wait and see how this plays out. I think you have to give some time for the intermediaries, the mutual funds and the investors to absorb this and let's wait and see. I am optimistic.