Why you should never ask your bank manager for investments?

December 12, 2011   ·   0 Comments

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http://stockssavvy.comWhat are the best mutual funds to invest in? There are various easy ways of finding this out. But one of the worst ways is asking your bank relationship manager. Clearly, for each bank, the best mutual schemes are none other than the schemes belonging to their own group or the ones that offers the maximum commission.

Sample this data. Of the Rs21 crore commission paid out to major distributors by Axis Mutual Fund, Rs 14.19 crore or 68% has gone to Axis Bank. Of the Rs288 crore commission paid out by HDFC Mutual Fund one of the largest chunks (14%) has gone to HDFC Bank, is 35% of the commission earned by HDFC Bank. It is the same with other groups are into both banking and mutual funds businesses. And when the money is not going so much to the bank of the same group, it is going to another bank.

This makes a nonsense of the Securities and Exchange Board of India’s (SEBI) efforts to ensure that distributors do sell fund schemes in an unbiased manner in the interest of customers.

What are the best mutual funds to invest in? There are various easy ways of finding this out. But one of the worst ways is asking your bank relationship manager. Sample this data. Of the Rs21 crore commission paid out to major distributors by Axis Mutual Fund, Rs 14.19 crore or 68% has gone to Axis Bank. Of the Rs288 crore commission paid out by HDFC Mutual Fund one of the largest chunks (14%) has gone to HDFC Bank, which is 35% of the commission earned by HDFC Bank. It is the same with other groups which are into both banking and mutual funds businesses. And when the money is not going so much to the bank of the same group, it is going to another bank.

Clearly, for each bank, the best mutual schemes are none other than the schemes belonging to their own group or the ones that offers the maximum commission. This makes a nonsense of the Securities and Exchange Board of India’s (SEBI) efforts to ensure that distributors do sell fund schemes in an unbiased manner in the interest of customers

Banks have a readymade database of their clients’ personal details and their financial situation. Armed with such information it is easy for them to cross-sell financial products such as mutual funds and insurance. But this selling usually does not take the customer’s interest into account. It is purely driven by commission.

Now that it is proven that banks are pushing hard fund schemes fund companies of the same group, how does SEBI plan to address this issue? And where does SEBI’s recent concept paper to deal with conflict of interest by separating advisory and sales stand now? They can have one desk which ‘advises’ and another desk that ‘executes sales’. It would be the same organisation—and the same mis-selling.

Source: Moneylife

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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