“Hey, great news! AMFI, the industry lobby of mutual funds, has been able to seek a big concession from SEBI.”
When a colleague broke this news to me, I instantly asked:
“Will it make it easier to invest in mutual funds?”
“NO”, he said.
“Will it make mutual funds simpler to understand?”
“NO”, he said again.
“Will I finally be relieved of the post sale trauma and get better service?”
“NO, NO, NO!” By now he was irritated.
“Oh! Then what is this big thing for?”
“It is not about the investor. It is about the fund industry. They finally got SEBI to relent and allow celebrity endorsement.
Soon, you will see an Amitabh Bachchan, Saina Nehwal, Virat Kohli, Vijender Kumar, Geeta Kumari Phogat talk about mutual funds and their benefits.”
“Ah!” I felt disappointed with this revelation.
The conversation ended but my thoughts didn’t.
Why was celebrity endorsement needed?
Turns out, even after almost 2 decades of existence, the mutual fund industry has able to grow to just Rs. 17 lakh crores in assets. Too small. They want to be bigger. They want more investors, more assets and more profits. For this, they need masses to flock to them.
And that is why they have been able to get SEBI to agree to the biggest idea of the century – celebrity endorsements.
Imagine Irrfan Khan back on TV with, “Fund investment na karne ki Bimari?” FINKIB, after his “Kam Insurance Lene Ki Bimari” or KILB.
The funny but ugly side of the fund industry
There are a 1000 more important issues to be taken care of by AMFI and the fund industry as a whole. But the top priority was celebrity endorsement. Does someone need a better example of misplaced priorities?
Count all the big names, the largest ones – there are serious issues with their approach to business, the way their operations and customer services are run.
I have written about a specific fund scheme issue before. One of the largest fund house has this large cap fund which grossly underperforms. Yet it boasts of assets that some of the smaller but better fund houses have been striving to reach for years. What a disservice to those investors.
Here are more real examples. A respectable fund house records the tax status of an individual as HUF and forgets to store the FATCA details. It then expects the investor to submit details again along with documents as proof.
One of the RTAs, which allows online transactions receives money via Netbanking through an NRE account but records the applicant status as Resident Indian. Isn’t it obvious that the person has to be a Non-Resident? While the investment was done online, paperless, it now expects the investor to send physical proof to make the change.
Who hasn’t suffered because of the beast called KYC? Yet there is only one fund house which has taken a decent approach to solve this issue by making the KYC process completely online including IPV. And it does this without forcing any investment down your throat.
Every fund house treats customer transaction data as its proprietary. How can they? The data first belongs to the customer, the investor. How can the fund houses not allow the customer to download and share transaction data, specially the direct plans ones, with their advisors in a easy, software-readable format?
They can allow Aadhar based eKYC using an OTP and accept funds for investments. What stops them to use the same technology to authorise their advisors to download transaction data in an excel file?
They didn’t push SEBI to make this simpler. When they did and if they did, all that they came out with was a physical consent form. If the investor wants to allow his adviser to access investment data from mutual funds, he needs to sign one such physical form for every single mutual fund he has investments in. How empowering!
Talking about transactions, if you have laid your hands on a consolidation transactions statement from one of the RTAs that lists transactions of all your investments across AMCs, you would be horrified. This statement needs a separate dictionary to be able to make sense of it. Every fund house uses a separate set of codes to mark their transactions.
It is not a simple Purchase, Sell, Dividend, STP, SIP, SWP, Switch, etc. but a whole series of permutations, combinations, abbreviations and grammar rules that sometimes takes a few phone calls to fund industry experts so as to decipher it correctly.
Why hasn’t the fund industry and AMFI standardised a simple book keeping issue? If they couldn’t do it, how difficult was it to approach the Institute of Chartered Accountants of India, which sets accounting standards for all the industries?
Long story short, the industry has got its focus completely wrong and hence the direction of the money flow too.
But no, celebrity endorsement is more important. It is going to help the “connect with the masses”, “make mutual funds popular as a brand”, “get more queries for sales” – anything and everything that enables the fund house to increase the size of its assets or AUM.
Where’s the investor – the raison d’etre of this industry, the reason this industry exists, in all this?
What needs to be done
Frankly, here’s what AMFI or any of the fund houses need to focus on. In my view this will lead to more sustainable growth and attract new investors as well as keep existing ones:
- Pushing to resolve the KYC mess – this probably remains the biggest hindrance to MF investing
- Simplification of the no. of funds – closing down or merging me too fund schemes and provide few but compelling choices to the investor
- Improving the quality of operations and customer care including use of artificial intelligence, thus save millions in costs of rework
- Sharing of investment and transaction data in an easy format with the investor / advisor so enable them to do necessary reporting and make sensible investment decisions
- Getting every mutual fund investment to be eligible for a tax benefit and not just ELSS
- Engage with individual investors at the ground level and help build trust with them
It is simple. Keep the investor at the centre and do everything around her. She deserves it.
Coming back to celebrity endorsement, the lesser said about it, the better.
Given their busy careers, celebrities have little understanding of financial products including insurance or mutual funds.
Saina Nehwal, one of our badminton greats, in an interview was all praises for LIC and endorsed their endowment plans. The article mentioned that she had also invested in one of the products. I really hope she didn’t.
All celebrities care about is their endorsement fee. Gullible investors display herd like behaviour and end up buying endorsed products.
What about investors?
Sadly, the difficulty level goes up. Investors will have one more filter to look at – which celebrity endorses which mutual fund.
As an investor, I would be very wary. The industry needs to get its basic act of fund management and investor servicing right.
Final note: The fact is celebrity endorsement is going to happen. Well, I am watching my list.
When an industry stops caring about its customers, and forget why they exist in the first place, they’ll be replaced by someone who does care, sooner or later.
I look forward to not having to cobble together a portfolio from disparate mutual funds. Instead, it would be good to have one central place where I define my portfolio:
– how much debt vs equity vs real estate
– of equity, how much in India vs abroad
– distribution across caps
These are good principles of financial planning, and unnecessarily hard to accomplish today.
Further, I would like to exclude companies that I consider unethical, like junk food or polluters, and thereby invest money in a way that fits my ethical goals. I think many people would like having a social or ethical purpose to their investments in addition to returns.
Maybe eventually we’ll all be using cryptocurrencies and invest via international platforms, just like we’re having this conversation on WordPress, built by a non-Indian company, despite both of us living in India.