The mutual fund industry has evolved from where it was a decade ago to where it has reached today, enormous assets under management (AUMs) of Rs 20 lakh crore and counting; though (this number is pretty poor for a country like India), nevertheless the y-o-y growth is healthy and encouraging. The future looks brighter, which could be more solid and with purpose and one can expect that the assets can even double in the next five years at the given pace and momentum.
This evolution is not only in terms of numbers, but also with the understanding of the need for mutual funds as part of an investor’s investment strategy, which vindicates the efforts put collectively by the market regulator SEBI, asset management companies, registrars, advisors from various backgrounds (individual advisors, regional and national distributors) and trainers over the years.
Without their involvement, such a stupendous growth would not have been possible. At the same time, technology must be given its due credit. It has played its role as the right catalyst to bring investors into active investing mode and without the assistance and help of technology growth would have been much lower, so the credit should also go to those who have been instrumental in designing such platforms.
Fund inflow has been steady and encouraging and the fact that B15 (other than top 15 cities) centers have been one of the major contributors make this even sweeter. The confidence comes from the fact that growth has been horizontal as well as vertical with participation across the cities and towns, resulting in a healthy growth mix. But the peak is yet far away and nobody can rest on their laurels. Not yet.
With the banks providing adequate support by way of NEFT and IFSC facilities a small center too can actively invest in mutual funds and here too the use of technology has been a game changer. The future looks good and that offers great opportunity for fund houses and the advisors to lick their lips in anticipation of taking the AUM to new heights.
But the problem areas for the industry as a whole comprising of AMCs and advisors is the manner in which mutual funds are sold that are mostly done in the old school style with little innovation on the advisory front. More than 75% of inflows are coming without any specific objectives of investing by investors which is alarming and not healthy.
Many advisors/distributors are wearing the mask of advisors but behind the façade they continue to be salespersons which should be avoided at all costs. Some worrying things are continuing to happen in the industry – (1) an advisor is getting cheques from investors but they are not for specific purpose or objectives; the investments are happening on the basis of relationship or the person is a good salesperson; (2) investment cheques are collected, particularly in systematic investment plans (SIPs), for perpetual time horizon, meaning for very long period of time which is without any time frame of investing; (3) advisors are holding AMCs at gunpoint and threatening them if “extra” commission is not given, the cheque would be filled in the name of such schemes of mutual fund houses who may offer them extra fee even at the cost of a non-performing fund/scheme; (4) non-performing schemes from some fund houses are being sold to unsuspecting investors, while advisors get a higher commission.
One may tend to overlook the fact by thinking that let the money come in why worry about such aspects, but this would be a wrong assumption. The questions an investor will ask soon would be –
- Why am I investing without any defined objectives?
- Why should I invest for a perpetual period which lacks any sort of purpose?
- Why was an investment objective not defined or explained when the investment was made?
- Why is my fund/scheme/portfolio not performing despite the markets doing well and similar schemes have done well compared to mine?
- Many a time, the money invested would have grown substantially in a short period of time and I continued to stay invested without being told or advised to move the money into a debt fund and eventually when I saw I had made losses or my profits had reduced drastically.
- Why was my portfolio not rebalanced by moving the investment with profits into a debt fund within the same fund house when the objective was achieved ahead of the time horizon?
These questions and more would be asked and if an advisor is not able to answer satisfactorily he would lose the customer forever. Let’s remember that every AMC is investing money and putting sincere efforts to educate an investor through continuous awareness and engagement programs which has gradually transformed an investor from being a “prejudiced & uninformed investor” to an “informed & knowledgeable investor” and he will have all the right to ask these questions and would seek satisfying answers.
With all these types of hara-kiri happening at different levels, as the knowledge of investor grows, would he look at advisors to assist them in investing? This is a serious aspect to ponder.
The introduction of direct mutual fund plans is not to encourage an investor to surpass an advisor or a distributor to invest, but offer him an option to invest on his own if he finds his advisor is not effective. The message is that business has to happen, funds have to flow in and what difference would it make whether the investment comes directly or through an advisor?
The time has come for advisors to remove the mask or not wear a mask at all and start behaving as an advisor. If he/she is still in the selling mode and not transformed himself/herself into an advisor it could prove dangerous; the time may not be far for him/her to be ignored by the investors and worse ignored by other stakeholders as well.
The way forward for survival is to stop taking investors for granted and stop selling mutual funds randomly without defined objectives and also trying to have ownership on the investor’s investing decisions. Unless advisors do not start a financial planning based advisory their days could be numbered. An advisor has to create value for his/her customer and should time and again make the customer realize the purpose of his presence in his/her life.
Every customer values his money and if he has to have an advisor as part of his investing decisions and journey he looks at what value is the advisor providing in his life. The day he finds that an advisor is just putting his code on the application form and earning commission from his NAV he will stop using the services which can be a big threat for those who are still wearing the masks. Beware!
The author has written six books on investing and personal finance. He has 23 years of industry experience and six years in academics