Small, medium MFs cry foul over industry recommendations

In its zeal to revive the sector, the mutual fund industry has made some recommendations to market regulator SEBI. Vivek Kudva, MD - India & CEEMEA, Franklin Templeton Investments says, "What SEBI can do, three things I mentioned, service tax outside, fungibility of total expense ratio and increase in total expense ratio."

But these recommendations have caused dissent in the industry itself, with smaller players saying the rules will only help the larger players.

Take, for instance, an increase in total expense ratio. Smaller players say such a hike will mean higher upfront commissions which will in turn lead to higher incremental charges on the upfront brokerage.

A situation larger players can deal with owing to larger corpuses and lower mobilization costs.

N Sethuraman Iyer, CEO, Daiwa Mutual Fund says, "Any increase in revenues, the larger players will stand to gain because that is going to improve their earnings on their existing corpus where they don't have to pay any additional upfront or mobilization cost."

Small players are asking that upfront comission to distributors be capped so distribution costs remain under control. N Sethuraman Iyer, CEO, Daiwa Mutual Fund adds, “Putting a ceiling on upfront payment is very welcome; the distributor understands that this is what he earns at the most.”

A recommendation that distributors be regulated by AMFI has also been shot down, saying a Self-regulatory Organisation is needed for this role, and not an association.

Puneet Chaddha, CEO, HSBC AMC says, "If AMFI do become an SRO, they have a framework within which to operate, so it won't be the same AMFI which will become an SRO in its current form and continue business as usual."

The SEBI board will meet on the August 16 to discuss AMFI's recommendations and smaller players hope their protestations will be taken into account.