Dr. Sanjiv Agarwal
While mutual funds provide a safe and desirable mode of investment for retail investors, they have not grown much due to lack of infrastructure on one hand and poor return to investors vis-à-vis their expectations. Mutual funds in India suffer from inadequate and non- expert distribution network as required, lack of penetration of products, lacunas in regulation of distribution network etc, besides investor protection issues. These issues have also adversely affected channelization of household savings into mutual funds and thus in growth of the economy. Recently, Securities and Exchange Board of India (SEBI) took certain steps and decisions aimed at development of mutual funds and increasing investment in mutual funds from retail investors as well as from smaller towns.
To energize the distribution system and to increase the ‘feet-on-street’ in distribution, SEBI has decided to simplify the distributor’s registration process and increase base of mutual fund distributors by including postal agents, retired officials from government, banks, retired teachers etc. for distribution of simple products and introduce varied levels of certification and registration depending on products & services offered.
In order to have greater and more focused investor education, it was felt that the industry should set apart a portion of the asset management fees annually for the investor education campaign. This may enhance the awareness about the mutual fund investments .
In order help enhance the reach of mutual fund products amongst small investor, who may not be tax payers and may not have PAN/ bank accounts such as farmers, small traders/ businessmen/ workers, cash is now allowed subject to compliance with the Prevention of Money Laundering Act, 2002 (PMLA) requirements as allowed in case of some other financial products. Also, for transaction cost of Rs 100/- per transaction of Rs 10,000 and above (or Rs 150/- for first time investor in mutual funds), the option to ‘opt out’ regarding transaction charges shall be on product basis at the discretion of AMC/ distributor.
SEBI has also recommended to the Government suggesting that Rajiv Gandhi Equity Savings Scheme(RGESS) may also provide for investment in equity schemes of mutual funds which have the securities allowed under RGESS as the underlying.
To enable the mutual fund industry to be in line with all other industries where service tax is borne by the end user, now the service tax payable on investment management fees will be charged to the mutual fund scheme.
All the above measures are surely going to help the mutual fund industry and related investments in a long way.