Brokerages plan revised cost structure for MF distribution
New Delhi: Distributors of mutual funds are planning to revise their transaction cost structure to attract investors as the charge for buying units in a mutual fund goes from tomorrow, something they believe will increase sales.
Distributors are now waiting to see whether asset management companies (AMCs) announce distribution commission for various MF schemes and on that basis they would charge advisory commission from customers.
On June 18, market watchdog Securities and Exchange Board of India asked mutual funds not to deduct marketing and distribution charges from the investment made by subscribers.
"Days of easy and guaranteed money for distributors are gone. AMCs need to sacrifice their margins now and pay the distributors or they can mop up advisory commissions from investors linked to certain schemes. However, the business of big distributors is unlikely to be hurt," SMC Capitals Equity Head Jagannadham Thunuguntla said.
Distributors believe that although in the short term
their revenue might be affected, in the medium to long term it
would pick up as more investors come in.
"Volumes will pick up in the medium term as investors
would start showing interest gradually. Though there would be
some stress on revenue in the short term, in the medium term
more buying interest would start pouring in from investors,"
ICICI Direct Executive Director Anup Bagchi said.
Leading retail brokerage ICICI Direct has announced
variable fee structures for high net-worth individuals (HNIs)
and retail investors.
It has introduced a nominal fee of Rs 30 for systematic
investment plans (SIP) and Rs 100 for investment below Rs
eight lakh. If the cumulative MF holding with ICICI Direct is
more than Rs eight lakh, the investors need not pay any
commission, the brokerage said in a note to its clients.
"With the entry load removal, clients deserve a
transparent rate cut. We are encouraging investors to
consolidate their investments with ICICI Direct so that we can
provide value-added services, which include research and
portfolio analysis free of cost," Bagchi added.
An entry load of up to 2.25 percent is a charge levied
by an MF when an investor steps in to meet its marketing
costs and distribution commissions.
Brokerages are now planning to break up their service
portfolio and charge for that. "Maybe brokerages would charge
for the transaction services separately for customers who want
advisory or support services also. That would bring in clarity
in the commission," Thunuguntla added.
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