Next Jan Dhan Yojana to target Mutual Funds/Equity markets?

I was actually thinking that the Jan Dhan Yojana should have also linked to equity market. Just like the bank account under the scheme provides insurance and overdraft facility, it could have provided a demat or a mutual fund account as well. Given the huge surge in equity markets, it could have made some people wealthier (or atleast perceive themselves). The government could have pumped itself saying we have created so much wealth for the excluded poor.

Apparently, SEBI did think about the idea and actually asked MF industry to replicate the bank account scheme in MF space.

Last week, U K Sinha, head of the Securities and Exchange Board of India (Sebi), impressed by the success of the Pradhan Mantri Jan Dhan Yojana, suggested a similar approach to enhance mutual funds’ reach across citizens. At the inauguration of Mutual Fund Utility, the single platform for all MF transactions, he said, “We should take some lessons from what is happening around us and try to expand the reach and role of the MF industry. If 13 crore (130 million) Jan Dhan accounts can be opened in such a short time, obviously the MF industry should give itself a target to reach out to all citizens.”

Really?

The industry is divided:

Hardly anyone disagrees, say sceptics, on bringing more investors into MFs’ ambit. However, when it comes to practicality, the idea fails to pass the litmus test. For that matter, the majority of Jan Dhan accounts have no balance. MF executives reject the suggestion. According to them, strict Know Your Customer (KYC) norms, absence of freebies like default insurance (provided by Jan Dhan Yojana) and unavoidable mis-selling dwarf this approach to expand.

The chief executive officer (CEO) of a mid-sized fund house, said, “Expansion for an industry like us can’t be forced with an artificial stimulation. If we follow the Jan Dhan approach, there are huge possibilities of mis-selling. Moreover, how possible is it to get money in those new accounts? We are here to create wealth for investors and for that, we need at least some money to start with.” He wished not to be named. Another chief executive said: “I agree the sector needs to expand but a Jan Dhan-type approach might cost us heavily. It’s a definite No. Will there be any benefits an investor get if s/he keeps it a zero account folio? Who would bear the cost of verification and other costs attached with maintenance?”

Sectoral experts put the KYC verification charge between Rs 30 and Rs 50. The cost of maintaining the account is additional. By that calculation, for every 10 million of new folios, costs will be at least Rs 30-60 crore, for a sector operating on a very thin margin, with a minimum net worth requirement of Rs 50 crore.

Dhirendra Kumar, chief executive of fund tracking firm Value Research, said: “Unless the fundamental structure is revamped, following the Jan Dhan approach does not look practical. KYC norms are very complicated and it appears they are there to keep investors away. It is causing inconvenience to people to open an MF account. It is for the regulator to streamline and enable growth for the sector.”

An executive said his fund house was working on a proposal to if it could use Investors Awareness Programme funds for KYC for new investors and open accounts for them. “If people want to invest they can use these folios. Else, they can use it when they want to,” he said.

Others disagree. “Technically, the IAP funds should not be used for KYC and opening accounts. This way, when investors decide to invest money, distributors and AMCs will make money out of it. Ironically, funds used to open such accounts came from money meant for investors’ awareness and education,” said an executive.

Sundeep Sikka, chairman of Association of in India (Amfi), said, “Industry has to move 100 per cent in that (Jan Dhan Yojana) direction. If there is support from the government MF should also have the same approach. Industry’s next target should be to reach 10 crore of investors.”

All this sounds good when markets are on the way up. In case of crisis, things go really bad as wealth declines across people. It is trying times when you need money, is when you might not have money.
The real deal is providing people with real things and not these financial ones. If real things are provided, financial ones will follow.
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