Why Non-standardization of MF Industry is Not an Issue

The following guest post has been written by Mr. Rajaraman K., Founder and Principal Advisor, RRK Advisory.

Mr. Rajaraman K., Founder and Principal Advisor, RRK Advisory

When you are always surrounded by unlimited food, you will not know what hunger is. This was the life of Siddhartha before he became ‘Buddha’. This is the thought that came to my mind when I read a recent article written by Kayezad E. Adajania.

He has addressed some of the important issues faced by individual investors trying to invest in Indian mutual funds. He has articulated well about the problems that arise due to non-standardization, the complicated procedures followed by each mutual fund company and how they make the life of individual investors miserable.

Let us see some of his complaints:

Changing SIP Scheme or Amount:

• If you wish to change the bank account from where your Systematic Investment Plan (SIP) money gets debited from, some fund houses mandate you to cancel the ongoing SIP and start a new one.
• Others allow you to submit a letter with a cancelled cheque leaf of the new bank and continue in the same folio.
• If you wish to terminate an SIP midway, some fund houses accept a request letter from you. One of the top five fund houses has a form that you got to fill asking details like when you started the SIP, your scheme’s name and option, and so on. One wrong detail entered here, I am told, and your application gets rejected; your SIP continues and money keeps going out of your bank account.
• If you wish to renew your SIP, some fund houses mandate that the first instalment be paid by cheque and subsequent instalments through bank transfers. Others initiate bank transfers straightaway.

Nominee Registration:

• Some fund houses allow you to nominate more than one person. Others allow only a single person.
• A foreign fund house of European origin insists that you sign a declaration on the form if you don’t wish to nominate anyone; many fund houses don’t insist on a declaration. Not signing declarations in the forms of such fund houses results in your application getting rejected.

He goes on to write:

• “But it’s quite another when different fund houses have different policies on simple issues.”
• “Amfi should bring together fund houses to agree on a common set of guidelines and practices to be followed. Over the years, it has been issuing “best practices” guidelines, but since Amfi is a trade body and not a regulator, fund houses are not obliged to listen.”
• “All processes can never be standardized, but things such as account forms, acceptable ways of filling it (some fund houses don’t allow ink whiteners to be used on application forms; others say as long as they are not on bank account and folio number details, it’s okay), the process of making switches or redemptions, SIP renewals and so on should be made uniform.”

I agree 100% with the issues brought out by Kayezad. It is quite a lot of hassle and waste of time for investors to get bogged down by different procedures and policies set by different fund houses.

Unlike USA, where an investor’s appetite for investments can be filled by one mega fund house like Vanguard or Fidelity, in India, individual investors require schemes from various mutual funds. Not one fund house in India has the best performing funds in all different asset classes. So, an investor ends up buying schemes from 4-5 different fund houses.

Now each of these fund houses having different procedures and policies only confuses the client. It leads to mistakes and causes procedural delays.

But those having an account with FundsIndia would not know any of these issues. He lives a life like Siddhartha. FundsIndia takes all non-standardization issues out of his sight and let’s him live the life of a “prince”.

Your procedure for changing the SIP scheme or increasing or decreasing the SIP amount is the same, regardless of what mutual fund house you invest with. There is no lesson to learn. There are no fund house circulars on investment procedures you need to keep track of. For an investor, all fund houses are the same for investment. With one cheque, an investor can invest across mutual fund houses in different schemes. You can mix HDFC Top 200, Reliance Gold Savings Fund and Birla Sun Life Dynamic Bond Fund in one cheque or in one online payment.

There are some battles worth fighting for and there are some we can avoid. Open an account with FundsIndia for your investments and forget about all the non-standardization issues of the MF industry.