Mumbai, Aug 8: The asset management industry in India is one of the costliest and there is a lot of scope to further bring down the costs of investing, said UK Sinha, former chairman, Securities and Exchange Board of India (Sebi).
While delivering his speech as the chief guest for Business Standard Fund Café 2018, Sinha said due to high costs we are seeing assets moving away from actively-managed funds to exchange-traded funds.
“Very serious focus on cost reduction is required, without which the industry may face some serious bumps,” he said. Sinha said high costs is one of the reasons why pension money was going towards passive funds.
“Even when EPFO started investing in the markets, they preferred to go into index funds and not in active schemes.”
Globally, also trillions of dollars were moving from active funds to passive funds, said Sinha adding that the same trend could play out in India.
Sinha cited reports of industry players not adhering to the commission ceiling set by industry body Amfi.
“There is a circular from Amfi asking industry to observe self-discipline. There are reports that are not being seriously implemented,” he said.
He said during his tenure at Sebi and even now there is a serious debate whether the market regulator should set a ceiling for the commission. “If Sebi does it, the rules will be etched in stone. It is better the industry lowers the cost on its own,” he said.
He said some equity schemes were paying commissions were as high as three per cent and during his time more than one per cent commission was the order of the day.
“I hope good sense will prevail in the long-term interest of the public there will be some movement towards a situation where there is focus on reducing costs,” he added.
Sinha praised the growth shown by the domestic mutual fund industry in the past five years, adding that there was potential for the industry assets to grow five times in the next five years.
“SIPs are growing fast, equity assets are growing fast, scheme performances have been good, the industry has many reasons to be proud of,” he said.
He credited the investor awareness programmes undertaken by Sebi and also the industry for the growth in assets.
“The campaigns launched in the last six years have been extremely helpful. Sebi itself has done over 50,000 investor awareness programmes. The AMCs also have conducted a lot of programmes. The TV ads have had a good impact in delivering the message,” he said.