New Asset Class: Distributors need training, certification to sell, say fund managers

Currently, any entity wanting to become a PMS distributor must appear for an XXI exam conducted by the NISM (representative image)

While the Securities and Exchange Board of India (SEBI) has allowed mutual funds to offer products under the New Asset Class category with strategies that fund houses were not permitted earlier, industry sources believe that the distribution part of the segment needs to be worked upon.

Mutual fund managers say that since mutual fund distributors are unfamiliar with these complex products, they may need to pass new certification exams or undergo specialized training to sell them effectively. As the product details emerge, industry players are expected to urge industry body AMFI to provide clear guidelines and additional resources to help distributors sell these products.

“To sell strategies like inverse ETFs and long-short funds, it's essential that distributors fully understand them first. At an industry level, there is a need for additional certification for distributors handling these products,” said Gaurab Parija, Head of Sales and Marketing at Bandhan Mutual Fund.

Currently, any entity wanting to become a PMS distributor must appear for an XXI exam conducted by the National Institute of Securities Markets (NISM) – the nodal body for various certifications mandatory for market participants. Meanwhile, mutual fund distributors have to give NISM VA exam.

"Once the New Asset Class regulations are finalised, we will conduct multiple sessions to educate distributors about it,” said D.P. Singh, Deputy Managing Director & Joint CEO at SBI Mutual Fund.

However, the Association of Mutual Funds in India (AMFI), the umbrella body of mutual funds, is not currently considering a separate examination for distributors.

“We are not considering a separate examination for distributors at this time, as we assume that investors with a minimum investment of Rs 10 lakh will have an adequate understanding of the associated risks with the New Asset Class,” said Venkat Chalasani, Chief Executive Officer of AMFI on sidelines of Cafemutual Confluence held in Mumbai.

He, however, said that the distributors will have to give proper disclosures and build scenario analysis to understand the outcome of a particular strategy.

On September 30, the SEBI board gave its final go-ahead for the New Asset Class. The minimum ticket size for the new asset class is pegged at Rs 10 lakh per investor across all investment strategies.

In July this year, SEBI had released a consultation paper asking the industry for feedback to launch a new asset class that could be targeted at investors looking at something between a PMS and a mutual fund product and with a higher investable amount and risk appetite.

More importantly, this new asset class aims to reduce the proliferation of unregistered and unauthorised investment schemes which often promise unrealistic high returns and exploit investors’ expectations for better yields by providing a regulated product, the SEBI consultation paper on the new asset class had stated.