The asset management industry in India is one of the costliest and there is a lot of scope to further bring down the costs of investing, said UK Sinha, former chairman, Securities and Exchange Board of India (Sebi).
While delivering his speech as the chief guest for Business Standard Fund Café 2018, Sinha said due to high costs we are seeing assets moving away from actively-managed funds to exchange-traded funds.
“Very serious focus on cost reduction is required, without which the industry may face some serious bumps,” he said. Sinha said high costs is one of the reasons why pension money was going towards passive funds.
“Even when EPFO started investing in the markets, they preferred to go into index funds and not in active schemes.”
Globally, also trillions of dollars were moving from active funds to passive funds, said Sinha adding that the same trend could play out in India.
ALSO READ: Sebi warns heads of asset management companies against 25 violations
Sinha cited reports of industry players not adhering to the commission ceiling set by industry body Amfi.
“There is a circular from Amfi asking industry to observe self-discipline. There are reports that are not being seriously implemented,” he said.
He said during his tenure at Sebi and even now there is a serious debate whether the market regulator should set a ceiling for the commission. “If Sebi does it, the rules will be etched in stone. It is better the industry lowers the cost on its own,” he said.
He said some equity schemes were paying commissions were as high as three per cent and during his time more than one per cent commission was the order of the day.
“I hope good sense will prevail in the long-term interest of the public there will be some movement towards a situation where there is focus on reducing costs,” he added.
Sinha praised the growth shown by the domestic mutual fund industry in the past five years, adding that there was potential for the industry assets to grow five times in the next five years.
“SIPs are growing fast, equity assets are growing fast, scheme performances have been good, the industry has many reasons to be proud of,” he said.
ALSO READ: MF industry adds 3.2 million members in last one year on awareness campaign
He credited the investor awareness programmes undertaken by Sebi and also the industry for the growth in assets.
“The campaigns launched in the last six years have been extremely helpful. Sebi itself has done over 50,000 investor awareness programmes. The AMCs also have conducted a lot of programmes. The TV ads have had a good impact in delivering the message,” he said.
Sinha warned the industry of potential disruption arising out of new entrants to the distribution scene.
“Time has come for the distribution industry in India to acknowledge the important changes taking place around us,” he said.
“Blockchain has been used successfully to distribute mutual funds globally. Players like Google are looking to enter the asset management industry. Many technology companies trying to enter the MF space, in the same manner, they have entered the payment space,” he said.
“Business as usual will not survive,” he said.
“There will be changes. Some of them could be very disruptive. The question is are we preparing ourselves to adapt to these changes,” he said while concluding his speech.
While delivering his speech as the chief guest for Business Standard Fund Café 2018, Sinha said due to high costs we are seeing assets moving away from actively-managed funds to exchange-traded funds.
“Very serious focus on cost reduction is required, without which the industry may face some serious bumps,” he said. Sinha said high costs is one of the reasons why pension money was going towards passive funds.
“Even when EPFO started investing in the markets, they preferred to go into index funds and not in active schemes.”
Globally, also trillions of dollars were moving from active funds to passive funds, said Sinha adding that the same trend could play out in India.
ALSO READ: Sebi warns heads of asset management companies against 25 violations
Sinha cited reports of industry players not adhering to the commission ceiling set by industry body Amfi.
“There is a circular from Amfi asking industry to observe self-discipline. There are reports that are not being seriously implemented,” he said.
He said during his tenure at Sebi and even now there is a serious debate whether the market regulator should set a ceiling for the commission. “If Sebi does it, the rules will be etched in stone. It is better the industry lowers the cost on its own,” he said.
He said some equity schemes were paying commissions were as high as three per cent and during his time more than one per cent commission was the order of the day.
“I hope good sense will prevail in the long-term interest of the public there will be some movement towards a situation where there is focus on reducing costs,” he added.
Sinha praised the growth shown by the domestic mutual fund industry in the past five years, adding that there was potential for the industry assets to grow five times in the next five years.
“SIPs are growing fast, equity assets are growing fast, scheme performances have been good, the industry has many reasons to be proud of,” he said.
ALSO READ: MF industry adds 3.2 million members in last one year on awareness campaign
He credited the investor awareness programmes undertaken by Sebi and also the industry for the growth in assets.
“The campaigns launched in the last six years have been extremely helpful. Sebi itself has done over 50,000 investor awareness programmes. The AMCs also have conducted a lot of programmes. The TV ads have had a good impact in delivering the message,” he said.
Sinha warned the industry of potential disruption arising out of new entrants to the distribution scene.
“Time has come for the distribution industry in India to acknowledge the important changes taking place around us,” he said.
“Blockchain has been used successfully to distribute mutual funds globally. Players like Google are looking to enter the asset management industry. Many technology companies trying to enter the MF space, in the same manner, they have entered the payment space,” he said.
“Business as usual will not survive,” he said.
“There will be changes. Some of them could be very disruptive. The question is are we preparing ourselves to adapt to these changes,” he said while concluding his speech.
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