Mutual Fund and their distributors The two-headed Goliath

Exorbitant annual fees and commissions to distributors are hurting Indian mutual fund investors. There is a solution, but don’t expect your local distributor to tell you about it

Every year, Rs 15,000 crore is automatically deducted from investors’ mutual fund investments and paid to mutual fund salespeople

High fees and commissions, along with the mis-selling that they cause, leave investors significantly poorer

The solution is zero-commission plans. Yet only 5% of individual investors are doing this

What’s keeping zero-commission plans from being mainstreamed and why?

The 2017 book, ‘How Fund Managers are making you Rich’, resonates with the advertisement jingle ‘mutual funds sahi hai’ (mutual funds are terrific). But the book also talks about a meeting between Ajit Dayal, the founder of Quantum Mutual Fund, and senior management at other mutual funds (MFs): “Dayal…called the mutual fund industry a den of thieves”. It is impossible to reconcile the title of the book with that quote.

There are others who are critical of MFs. Sanjiv Shah, former CEO of Goldman Sachs’ Indian MF and co-founder of Benchmark AMC, has written in an article that: “If one looks at the way [mutual fund asset management company] AMC business is structured, you wouldn’t be wrong to surmise that intermediaries [and not the end investors] are the clients”.

AUTHOR

Avinash Luthria

Avinash Luthria is the Founder, Fee-Only Financial Planner and SEBI registered Investment Adviser (RIA) at Fiduciaries (https://fiduciaries.in). His approach can be more precisely described using US terminology as ‘Advice-Only’ Financial Planning & Investment Advice. Prior to this, Avinash was for a decade, partner and member of the founding team at Gaja Capital, a leading independent India-focused Private Equity fund. Previously, he has been an entrepreneur, management consultant, project manager and programmer. He has an MBA (Finance) from IIM Bangalore and writes on financial planning and investing in various publications (https://fiduciaries.in/articles/). You can reach him at Avinash at the rate fiduciaries.in

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