Not an insubstantial sum, if investors switch to no-loads. But the industry is working on the assumption that investors won’t switch, they will move away. Besides, if there is an existing business model working well, why upset it? This seems to be the logic behind AMC-intermediary nexus. What’s wrong in this is to get small investors to pay a commission even when they don’t use the services of a distributor.

Large investors don’t pay loads — mutual funds have structured this product for small investors such that no load needs to be paid on an application of Rs 5 crore or more. The reason given is that it is cheaper to service one large application of Rs 5 crore than 1,000 smaller ones of Rs 50,000 each. But the same argument goes the other way when the financial sector offers its technology platforms to lower costs in banking, telecom, credit cards and so on. Only when it comes to mutual funds — and of course, the bigger gobbler of undeserved and opaque costs, insurance companies — does technology fail.

In other words, small investors who have little or no voice and are generally too busy and financially illiterate to question commissions, should pay while large investors get to keep their cherries. The two-face I find most irritating is that the same people who want the government, the regulator, the non-profits — anyone but themselves — to encourage financial literacy, use that lack of information and knowledge to bat for distributors.

... contd.