The present Indian mutual fund industry is well regulated, and SEBI Mutual fund regulations are followed by the industry not only in words, but also in principle. Even outside the purview of these regulations, the best business practices are followed internally by the industry, which is why the mutual fund industry has managed to gain investor’s confidence across the country in such a short span of time.

The effective framework within which the industry operates is a result of adhering to well thought out regulations keeping the investors interest in mind. Norms for mandatory disclosures, limits on the amount of expenses that can be transferred to the ultimate investors and other healthy measures have certainly kept the industry going. The regulators have also amended these measures form time to time, keeping in mind the dynamic nature of the markets, and recent guidelines like changing new launches from being called IPOs to NFOs, to prevent gullible investors from being mislead, was perfectly timed. SEBI’s recent diktat on amortization of initial issue expenses was also a move in the right direction. This ensures that the investors getting into the fund after the NFO are not penalized.

Though nobody seems to be complaining about how the industry operates in the present times, but there are still areas where greater accountability and transparency levels would propel the industry towards a new growth trajectory. An important place in the mutual fund business is occupied by the fund distributors, who are chiefly responsible for the penetration levels achieved by the industry so far. The mutual fund distribution business needs to be set right, where both fund houses and distributors have been guilty of certain malpractices.

The problem area in the fund distribution business is not that much of guidelines and regulations but that of implementation of these regulations. Healthy regulations like qualifying AMFI examinations for every person associated with the distribution of funds, restriction on kick backs to clients/investors etc. are all there in place, but in reality their implementation is sadly very restricted. The recent news about SEBI looking to introduce guidelines to regulate the business of financial distribution will definitely move the industry towards higher transparency levels, which is always a welcome move.

Another area of concern is the fund management activity of the AMCs and the fund mangers themselves. Thanks to stricter controls both by the industry regulators and capital markets regulators, incidents of the likes of Sameer Arora may not be there in public memory anymore.

Distribution business essentially requires knowing the client well, preparing a financial plan based on the individuals risk appetite and fund requirements and then suggesting schemes to meet the investment objectives. However, majority of the distributors are sadly lacking in efforts to carry out these important functions.

Regulations to monitor fund distribution business would be a step in the right direction and as and when these are implemented will definitely augur well for the industry. The challenges will still remain the same for the market regulators and implementation of these guidelines in the right spirit will be the focus area. The onus this time should be not on the regulators but the fund houses and distributors also. The biggest responsibility has to be taken by the investors themselves, and its about time they gave something back to the industry which has given them so much in the last couple of years.