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IFA Galaxy to request SEBI to relook direct investment

If more number of investors, due to the lure of reduced expense ratio, switch from a distributor to direct investments, it would directly affect the revenue stream of an IFA

October 25, 2012 2:43 IST | India Infoline News Service
IFA Galaxy has circulated a draft letter among mutual fund distributors and IFA (independent financial advisors) to get their views on introduction of direct plans in MF schemes. The views will later on be forwarded to capital market regulator SEBI (Securities and Exchange Board of India) for consideration.

According to Ramesh Bhat, President, IFA Galaxy, the feedback from IFAs will be later on sent to SEBI. The process will take around 15 days but we hope that the regulator re-looks at the regulation before implementing it, Mr Bhat added.

Following are some of the IFA Galaxy’s views against introduction of direct share class: Mutual funds were introduced to cater to those investors who are not savvy enough to make their own investments in equity markets. If an investor is savvy enough, he would anyways prefer a direct equity investment.

Currently there are 44 AMCs (asset management companies) offering multiple schemes and this number increases with every new launch. How would an investor make the right choice and decide on the right scheme for his investment among the maze of options available to him? Under these circumstances would he not be confused and make a wrong choice? If he loses his money due to his own wrong choice, what are the chances that he would ever come back for a Mutual Fund investment in the future?

Expansion of market usually depends on the width of the distribution network. If more number of investors, due to the lure of reduced expense ratio, switch from a distributor to direct investments, it would directly affect the revenue stream of an IFA. With dwindling revenue an IFA would find it difficult to remain afloat and soon abandon the business.

There are various servicing activities which an IFA provides. Some of these services include change of address, consolidation of folios, transmission of funds, including nominee, correction of mistakes in the account, change in KYC, etc. With the absence of an IFA, an investor would find it difficult to manage his investments.

A direct investor would be largely guided by on-line sites promoting mutual fund performance. What is the guarantee of these sites providing unbiased information? Further these sites do not offer periodical reviews or counseling, which is a much needed activity for helping the investor staying on course or making course corrections. Lack of this service would leave an investor stranded.

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