Mutual Fund industry in India is in a very nascent stage. Still growing, still evolving.
There has been various initiatives on various fronts and now the industry has reached close to Rs 8 lakh crore. Compared to the size of most developed countries and even countries such as China and Australia, we are much smaller in size.
When the Prime Minister took over the Finance Ministry from Pranab Mukherjee on his election as the President of the country, one of the first point the PM raised was that the mutual fund industry needs to be re-energised.
Before this there had been various discussions which culminated into a circular issued by the Securities and Exchange Board of India on September 13, 2012.
The most important aspect of this circular is the introduction of a new cadre of distributors and also the rule on Top-15 and Beyond Top-15 cities. Thus the thrust would be towards penetration of mutual fund products into smaller towns. To support this initiative, AMFI quickly took a decision to reduce the registration fees for individuals from Rs 5,000 to Rs 3,000 from November 2012.
Remember, the fees of Rs 3000 is for three years, which amounts to only Rs 1,000 a year. For the new cadre of distributors introduced, the fee prescribed is Rs 1,500 for three years. Here the fee is only Rs 500 per year. During the quarter Oct-Dec 2012, we saw more than 700 new registrations.
To give further impetus to the whole exercise, AMFI decided to provide a window during which we would waive off the fees completely making the registration free of cost. This would mean that any individuals either in the normal cadre or the new cadre can register themselves as a distributor for the first time free of cost during five months from February 1, 2013 to June 30, 2013. All required formalities for registration, like passing the required certification, etc, need to be completed for registration.
Under the new cadre, we have also included the following two categories:
Intermediaries/Agents engaged in distribution of financial products e.g. insurance agent, FD agent, National Savings Scheme products, PPF, etc registered with any other Financial Services Regulator.
The new cadre that has been announced is a very interesting move. This cadre is allowed to sell only performing Diversified Equity Funds, Fixed Maturity Plans and Index Funds. These category funds come with low risk. Therefore, for the new cadre, who will undergo a very simple examination specially devised by NISM.
With only simple products available for this cadre, they would be able to reach out to more people to sell these less risky products.
At present, we have close to 50,000 distributors registered with AMFI. With this move, we expect that about one lakh more distributors may be added to the fold. With such large force, the industry would then be in a position to grow, expand and penetrate into smaller towns. We also expect that the smaller towns will contribute more in the new cadre of distributors.
The market sentiments have improved. In a long-term perspective, there is no doubt about growth of Indian economy.
At such a scenario, we believe that such an initiative will augur well for the development of the industry. The penetration that we all are looking for can only be achieved by more “Feet on Street”.
With the introduction of the new cadre and the announcement of free registration will only support in achieving this objective of more feet on street to sell mutual fund products.
— Author is Dy Chief Executive, Association of Mutual Funds in India