What will be the impact of new SEBI proposals on AMCs? A Balasubramanian answers

I would assume that the process would be I am sure many people in the industry who would benefit. The model will get to undergo a change and those representations would be received by the regulatory authorities and post that again they will go for a consultation.

And not necessarily that every recommendation that is coming in would pass through or would get accepted or would get rejected. Therefore, one has to just see within this which are the one would actually be dropped.

And from a AMC’s point of view I would assume I think the AMC is one industry in the last many number of years have faced similar changes in the regulatory environment right from entry load going away and so on so forth.

Therefore every time such thing comes with the business model has to get adjusted. For one year it remains a relevant large player and focuses on both increasing the customer base and serving more number of customer base at the same time maintain the overall profitability and that remains one of the core area focus at every point of time.
Too early for me to comment at this point of time since we also as an AMC and as a body has given the proposal to the SEBI in the past as to what can be done what cannot be done.
So we have to wait for the final outcome to come.

There is a specific mention for debt mutual fund that the TR should be cut down but do you think that is something which may not have a very large impact because the TR in debt on an aggregate level is actually not 2% it is already way below 2%?
I think the fixed income schemes if you look at liquid funds generally it is about 20 to 25 bps and then it goes up as the duration increases as the credit risk that we take increases but otherwise, I think the funds which are at the higher bracket, at this point of time, the size is low.

At the same time, this year, of course, it was a great opportunity for investors to look at fixed income schemes given the yields are high. At this point of time, as it stands today, of course, impact will be less. At the same time, the real need is to build the asset class, such as credit funds and long duration funds.

The development of such product may actually get a little back seat. I think it is more than a real impact. We need to look at which are the areas where the development will happen for the future. But those to that extent it can get impacted but otherwise, as it stands today the impact will be the least.

Just wanted to get a sense from you because these are the initial thoughts coming in from Jefferies but they are expecting that the caps can hurt AMC’s profitability by as much as 13%. And one of the ways to kind of rationalise that is pass through as well. What is your own take whether the industry will pass it on to the investors or not?
I think at this stage, it is difficult for me to comment in terms of what kind of impact would come. But at the same time, as I said in the past, whenever such a thing happens, the business model also needs to get adjusted in order to ensure that the economic model of everybody remains intact. But that is something we will have to just see and understand.

Coming back to the first point that you made, that this is in line with what the earlier discussions has been. So should we expect that this proposal will sail through in its current form or you would be making some recommendations on this?
No, as an AMC, as a body we had given certain recommendations in the past and at the same time for the market participants now it is a public discussion paper.

I am sure all the market participants also give their input. My own assumption is there are certain things that have to be sitting outside the TER. I am sure as they receive many proposals from market participants that will be subject to review. I would assume one could expect some dilution on some of the things that they have proposed like tax resolution and other things that we will have to just see.