Mr A. P. Kurian is an old RBI and UTI hand, having held senior positions in both these organisations. He did his masters is Economics and Statistics (with a rank) before he joined the RBI as a Research Officer. He was instrumental in setting up UTI's marketing setup involving over 30 schemes. Given his varied experiance in financial services, it is not surprising that he finds himself on the board of several companies. He is working on several fronts (with SEBI, NSE, UTI Capital Markets, Council for Portfolio Management and Research. Mutual Fund Advisory Board, Technical Group on Derivative, Working Group on Dematerialisation) towards the introduction of capital market reforms. In the course of his career he has received several accolades (Marketing Man of the year 1987 Award, Best Professional Manager Award) instituted underscoring his commitment and competence.

Given his illustrious career and standing in the mutual fund industry, Personalfn could not think of a more qualified person to comment on SEBI’s latest guideline abolishing rebates. Mr Kurian also commented on other reforms and initiatives in the mutual fund industry and imparted some crucial advice to the mutual fund investor.

PFN: Is Sebi’s move to abolish rebates justified?

Mr. Kurian: First let me clarify, this is not SEBI’s code of conduct. This code was evolved by AMFI as ‘Best Practices’ norm in February 2001. It was a part of AMFI’s Guidelines and Norms for Intermediaries (AGNI). Section 3 of AGNI deals with the Code of Conduct for distributors/agents. What SEBI has done is that it has given its sanctity and stamp of approval to this code. This is a very welcome step on the part of SEBI.

PFN: What has been the response of the larger distributors?

Mr. Kurian: The law has been passed and all mutual funds have to abide by these guidelines. And everyone is following it. We (AMFI) along with the AMCs and the distributors have formulated a plan of action for the implementation of this law. We have planned a series of meetings and there is even a committee in place to oversee the implementation of this law. The idea is to enable the distributor to implement these guidelines and to oversee that the AMC ensures that the distributor implements them.

PFN: Is there an infrastructure in place to implement these guidelines? Over the long term, this move is going to be beneficial, but in the nearer term a lot of distributors who adhere to these guidelines will sustain losses at the expense of distributors who don’t adhere to these guidelines.

Mr. Kurian: There will always be stray distributors who violate guidelines. With some pressure they will eventually also abide by these guidelines. About 80% of the mutual fund distribution business is accounted for by about 30 to 40 distributors. When these distributors fall in line with the guidelines, other distributors will have no choice but to follow suit. On our part we are planning to organise seminars, meetings and issue press releases.

Basically there are three parties involved in the process. The AMC who gives brokerage to the distributor. The distributor who accepts money from the investor on the AMC’s behalf. The investor who invests in the mutual fund through the distributor. We will request all the parties concerned to create an atmosphere conducive enough for the adherence of these guidelines and not its violation.

PFN: What is your message to the mutual investor with regards to this development?

Mr. Kurian: Our message to the investor is that he must make his investment after considering his risk-return profile and the fund performance and not how much his distributor is going to offer him to invest in the fund.

PFN: Could you shed more light on the registration process that AMFI has initiated for distributors?

Mr. Kurian: As a first step we introduced a test and certification system for mutual fund distributors. The certification is now mandatory and all mutual fund distributors have to be necessarily certified. Now we must have all distributors registered with AMFI. They will be given an identity card. They will sign up with us underscoring their commitment to the guidelines. This must be made compulsory.

PFN: What are the other reforms AMFI is working on to introduce more professionalism in the MF industry?

Mr. Kurian: That has been our job right since our inception. In most of the developments in the mutual fund industry we have been humble contributors. Take for instance, valuations – the cornerstone of mutual fund investments. We have a standing committee on that. We have developed guidelines on valuation of non-traded debt/equity, thinly traded equity and valuation of unlisted equity. We have also prepared a draft on risk-management and submitted it to SEBI. Soon every mutual fund will need to have a risk management system in place.

PFN: Is there any legal recourse available to retail investors in case he/she has suffered at the hands of the AMC/distributor?

Mr. Kurian: Yes there are rules and regulations in place. He can approach SEBI, AMFI or the AMC. For instance, he is supposed to get a copy of the AMC’s annual report, he must receive his redemption cheque in 10 days. If he finds a violation on any of these issues he can approach SEBI, AMFI or the AMC. There are stringent laws in place to ensure that AMCs abide by these rules. For instance, if the investor does not get his redemption cheque within 10 days, the AMC has to pay a penalty @ 15% p.a. or so. On the whole, we get very few investor complaints, which can be counted on one’s fingers.

PFN: Mutual funds tend to treat the high networth investor (HNI) differently from the retail investor. There is information that is made available to the former from which he can benefit, while the same is not extended to the latter. Is this differentiation justified?

Mr. Kurian: I don’t know if that is happening. But what we have to understand is that in any business there are always several classes of clientele, as no market is homogenous in that respect. With mutual funds, there is the HNI, the corporate and the retail investor and they all have to be catered to distinctly. After all mutual funds are not like banks, where you have a lot of walk-ins for inquiries. Also we must remember close to 100% of sales are done through distributors. This segment (distributors/agents) needs to be kept informed in addition to the investor himself.

PFN: Where do you see the mutual fund industry headed over the next decade?

Mr. Kurian: This is one of the fastest growing segments of the economy. This is despite the fact that for nearly 3 years now the industry has been stagnant at Rs 1,000 bn (Rs 100,000 crores). That can be attributed mainly to subdued equity markets. Mutual fund investments are marked-to-market on a daily basis. The changes in the market value notwithstanding the industry’s poised for a robust growth path in the coming year.

Click here to read an earlier interview with Mr A. P. Kurian.

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