Selling MFs without a bias

MUMBAI: Ever wondered why a sales representative of your bank only tries to sell you mutual funds from that bank whenever he calls? Most fund houses and distributors claim that the open architecture in distribution of mutual funds in India is unparalleled in the world. What this basically means is that distribution centers like banks and brokerages sell products without any bias towards any particular fund house. However, as ET finds out, although this claim is largely true, there are many exceptions to the rule.

For example, Kotak financial planning group’s Kotak Freedom seeks to be an unbiased platform for buying mutual funds. It will allow the mass affluent investors to buy units of up to 21 fund houses, thus offering the widest coverage of funds in the industry. The new product also aims at making order placing easy for investors in that they can buy mutual fund units via a single phone call, mail, fax or by logging into an online account. Investors will also be sent monthly reports on their investments.

“We have a close to 160 relationship managers who will be offering personalised service helping investors build an investment portfolio, as per his or her needs,” says R Gopkumar, vice-president and head of financial planning business, Kotak Securities. “We will be providing unbiased services to investors in helping them choose a fund of their choice,” he adds.

Abhay Aima, head of private banking and equities at HDFC Bank makes his case for unbiased nature of distribution in India by saying that though his bank remains the largest distributor for HDFC funds, the bank is the third largest distributor for Prudential ICICI funds. “Of course the open architecture may not be present among smaller distributors. However, as the MF distribution system matures, this will fall in place too,” says Mr Aima. Market analysts say most foreign banks routinely engage in selective selling of mutual funds.

A distributor, who has been selling mutual fund schemes of most fund houses, says that distributors should not be the only ones to be blamed. “Fund houses sometimes restrict selling of their products only to their banking arms. This means that we only learn about a product after an investor comes to us asking for the fund,” he explains. “There are many instances where the rights of distribution of an MF of a bank-sponsored AMC are only available with that particular bank.”