Should distributors sell mutual funds of their in-house fund houses’ schemes or should they sell schemes of other Asset Management Companies (AMC)?
Replying to a question at an event organized by SBI Mutual Fund, India’s largest mutual fund, commemorating the fund house’s milestone of reaching Rs 10 lakh crore in assets under management (AUM), Madhabi Puri Buch, chairperson of the Securities and Exchange Board of India (SEBI) recounted an incident- a friendly altercation, with Nilesh Shah, managing director, Kotak Mahindra Mutual Fund.
Between 2009-11, Buch was the Chief Executive Officer (CEO) at ICICI Securities. At the same time, Shah was the Chief Investment Officer (CIO) at ICICI Prudential Mutual Fund.
To be sure, ICICI Securities is one of India’s largest stock brokerage houses as well as a distributor of other financial products like mutual funds. It was- and still is- one of India’s largest mutual fund distributors. Needless to say, ICICI Securities and ICICI Prudential MF belong to the same group. And by logic, it was expected that the distributor would favour an in-house mutual fund.
Buch recollected that once at the time, Shah had observed that ICICI Securities wasn’t selling ICICI Prudential MF’s schemes aggressively. Shah appealed to KV Kamath, who was ICICI Bank’s Chief Executive Officer (CEO) from 1996 till 2009, to request Buch to sell more of the fund house’s schemes.
Kamath called both Buch and Shah for a meeting, recounted Buch. Buch defended her stance saying that at the time ICICI Prudential MF schemes weren’t among the top – performing schemes. “I told Kamath to tell Shah to show performance, first. The schemes must be good performing. I am not going to short-change my customers just because ICICI Prudential Mutual Fund is an in-house fund house. My only aim was to give the best performing schemes to my customers,” Buch recounted as having said that Kamath. And Kamath agreed with her, she recounted.
Buch’s advice to all MF distributors: “Does your heart beat for your customer?” She says that distributors must sell schemes that are not only well-preforming, but are also the most suitable for their investors. Buch expressed confidence in SBI’s abilities to choose the appropriate schemes for its own customers, given SBI MF’s phenominal growth over years. To be sure, SBI MF is also India’s largest fund house.
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