Quest for growth led to mis-selling in industry, says Reliance MF CEO

The quest for growth has led to mis-selling and other malpractices in the 43-player mutual fund industry, said Sundeep Sikka, Executive Director and Chief Executive Officer, Reliance Mutual Fund.

“Such practices are not in the interest of end consumers. Sometimes this also results in putting pressure on the regulator to take extreme measures to establish a control mechanism,” Sikka said.

“Hence the onus is on us to collectively curb wrong practices across the Industry and always keep the interest of end consumer in mind,” he added.

Sikka was addressing the CII Financial Distribution Summit - 7th International Conference held in Mumbai today.

The Securities and Exchange Board of India has defined mis-selling as the sale of units of a mutual fund scheme by any person, directly or indirectly, by making a false or misleading statement, or concealing or omitting material facts of the scheme, or concealing the associated risk factors of the scheme, or not taking reasonable care to ensure suitability of the scheme to the buyer.

The capital market regulator,  SEBI has taken several steps to curb mis-selling in the mutual fund industry and the latest circular was on October 22.

In order to bring transparency in expenses, reduce churning of portfolio and mis-selling of mutual fund products, SEBI told the AMCs (Asset Management Companies) to pay all scheme-related expenses, including commissions paid to the distributors within the regulatory limits shall necessarily be paid from the schemes only and not from the books of AMCs, its associates, sponsor, trustee or any other entity through any route.

SEBI also asked the AMCs to adopt full trail model of commissions in all schemes, without direct or indirect payment of any upfront commission or upfronting of any trail commission in cash or kind, sponsorships or any other route.

Sikka pointed out that the profile of the Indian investor is extremely diverse, ranging from the completely unaware customer to the financially sound and tech-savvy investor. So, a majority of investors still need a dependable intermediary who can advise them on the correct choice of investment option, depending on individual needs.

He said the product manufacturers will have to work on enhancing customer experience using multiple platforms, from the traditional to the most modern like digitisation.

Sikka said there is enough opportunity for Indian financial institutions such as insurance companies and asset management companies to penetrate in India.

Over 95 percent of household savings in India goes to bank deposits and only 5 percent in other financial asset classes.

Giving a brief outlook on Indian financial institutions, Sikka said in the last 10 years mutual fund industry’s assets have multiplied nearly 5 times.

As per AMFI data, the average AUM has crossed 24 lakh crore in Q2FY19.

In terms of the insurance industry, he said the total first year premium of life insurance companies grew 18.9 percent year-on-year to reach $ 18.44 billion during April-November 2017.

The brokerage industry in India witnessed stellar growth in financial year 2017-18.

Equity turnover at the exchanges increased to Rs 1,733 lakh crore in FY 2018 from Rs 1,004 lakh crore in FY 2017, registering a staggering growth of 73 percent.

The average daily turnover increased to Rs 704 lakh crore from Rs 405 lakh crore a year ago

India’s mobile wallet industry is estimated to grow at a compounded annual growth rate (CAGR) of 150 percent to reach $4.4 billion by 2022 while mobile wallet transactions are estimated to touch Rs 32 lakh crore ($492.6 billion) by 2022.

Even initial public offer (IPO) has shown a healthy expansion. The year 2017 saw the listing of a total 153 IPOs in Indian stock market raising a total $ 11.6 billion.