Quantum AMC's Ajit Dayal who has been promoting direct investments - ie, sans distributors - for a long time has an article on SEBI's move to ban entry loads.
The distributors are not yet out of business - or their Living in Plunderland mentality. They may stop selling mutual funds, and start selling you a lot more of Unit Linked Insurance Products (ULIPs). Do you want to guess why? Yes, that is correct; the distributors make a lot more money selling you that junk than they did selling you the elephant droppings which were disguised as musk oil - an aphrodisiac.
The distributors and wealth managers will play the regulatory arbitrage: go where the regulator is less vigilant.
AIG did that.
Lehman Brothers and Bear Stearns did that.
Most who worked for AIG, Bear Stearns or Lehman did pretty well in life.
Their customers and investors - well, who cares about them anyways?
So, don't be surprised if your distributor and private client wealth manager calls you and explains to you why mutual funds are terrible places to invest and why ULIPs is the best thing since aaloo tikki.
I've read several articles which clearly explain why ULIPs are a bad idea for consumers - compared to a combination of cheap term insurance and investments via mutual funds (or directly) in a mix of stocks and fixed return assets. Here is Deepak Shenoy's well researched post which shows how ULIPs are nothing but a rip off.
If you ask me, I would never invest in a ULIP, ever. I don't want to ban these products - I'm all for freedom here - but I ask you this, if a bank said they would give you 2% return on your Fixed Deposits, will you invest? Especially when you can get 3.5% in a savings account? The 2% offer isn't illegal, it just plays on how stupid you are at a given time. ULIPs prey on the same thing, under the guise of an otherwise less-than-toxic word: Insurance.
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