It has been almost 2 year since entry load has been removed and it was expected that the industry will come on its own by now but neither it has happened nor it seems likely in near future . Everybody expects distributor to change their business model , bring strong advisory process in place and charge fee for their survival and growth. Very few have gone for it and most still living in assumption that SEBI will do something for better brokerage .
One feels that AMCs also need to change their business model . No industry can grow when the buyer ( investor ) does not gains , seller ( distributors ) does not gains and manufacturer ( AMC ) does not gain .
In any industry the origination point i.e here AMC have to move the first move that ensure everybody gains. Lets us examine what AMC can do to ensure industry growth .
Cost – Need of cost rationalization . Each component of cost has to be seen in perspective what value it adds for industry growth . High salary cost need to be examined in light of AUM growth and profitability . Any saving due to salary reduction if passed to distributor or for market development will benefit AMC more and can be key for survival on long term basis . Even if each AMC saves few cr from salary cost and give 50 basis point more to distributor , there could have raised few hundred crores of long term equity or debt if they want.
Sales Force – How can a war be won without adequate nos of soldiers on field. Most AMCs have gone on downsizing at junior level but that has to be viewed more in terms of opportunity than cost . If some of the top level cost is shifted to lower level then there will be more attention to distributor and in turn add fresh sales .One reason of distributor not focusing on MF has been gap in relationship at ground level. Any RM can not handle more than 50-60 active relationship in a justifiable manner.
Fund Performance – No one puts money to see losses . If investor loses money due to market downturn and distributor earn less trail income due to lowering of his AUM then has AMC or its fund management team also taken the brunt of it ? One has seen good fixed pay package and bonus continue to flow irrespective of what investor and distributor are facing .Why there can not be variable pay model ?. Why there can not be high watermark principle for AMC like PMS. Let the investment management fee have two component , one fixed which is must to meet regular expenses and one , variable component . From the variable portion let there be a some shared with distributor to reward him for good advice. The investment management fee should be structure so that the variable component is linked to fund performance . Here either all three entities ( investor, distributor, AMC ) move in tandem either on gain path or loss path.
Market Development – How many AMCs have really gone to develop mid to smaller market. Except for very few all are localized in top 10-12 cities . If they just target money lying in Bank deposit, Post Office deposit and position appropriate MF product as long term wealth creation product target them AMC size can just be double in no time .
Why can not money spend by AMCs for developing market or investor awareness be given tax advantage . Even if smaller AMC which are making losses this portion of money can be not shown in AMC account book but at promoters end and they being profitable in their overall business can take advantage.
Alternateively let all AMC contribute a base amount to AMFI and that money used for developing smaller market.
Just like we have tax free zone , similar concept has to be brought in for AMC if effort put to develop that location.
Creating captive distribution base – Except for few old ones no other AMCs want to develop captive distribution base . AMCs have to create some value adds to create some exclusivity in relationship. Why can’t AMCs offer business consultancy , organize marketing activities or subisdise his marketing cost ,help in back office management of distributors etc.
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