Mumbai: Investors will no longer be charged
a 2.25 percent distribution commission up front by mutual
funds beginning on Saturday following a Sebi directive.
Market regulator Securities and Exchange Board of India
(Sebi) recently said that "there shall be no entry load for
schemes, existing or new", a directive that has forced the
mutual funds industry to gear up for a new fee structure from
August 1.
Association of Mutual Funds in India (AMFI) Chairman A P
Kurian told PTI that "it is a new system. It is
investor-centric. All three stakeholders -- distributors, fund
houses and investors -- will have to adjust to the new
system."
Currently, as much as 85-90 percent of the industry's
business is generated through distributors, Kurian said.
Taurus Mutual Fund CEO Waqar Naqvi said the new system is
good from the investor point of view but not so for the fund
houses.
"People will take time to reconcile to the new structure.
The fund flow to the industry could get affected over the next
three months," he said.
According to him, though the size of the MF industry at
present is about Rs 6,00,000 crore, the total profit of asset
management companies together is only about Rs 550 crore.
There is a regulatory cap on expenses that a fund house can incur in a year. There is a cap on earnings. The fund
houses can make money only by increasing volumes. But the new
fee structure would affect the aggressive plans of fund houses
to penetrate the market, Naqvi said.
Asked whether collections would now fall given that
distributors would not have any incentive to sell mutual fund
products, Kurian said initially there could be some problems
but over a period of time, the industry would get adjusted to
the new system.
Each mutual fund will formulate its own strategy, he
said, adding investors would need to be educated about the new
fee structure.
There are an estimated 1-lakh distributors pan-India,
and according to AMFI, 85-90 per cent of the collection of the
mutual fund industry is through distributors.
The practice of charging distribution commission has
been in existence since more than a decade and the industry
feels this has helped in considerably growing its business.
The implications of the new rule are considerable as
distributors will now not have any incentive to push mutual
fund products and investors may not be inclined to pay
distributors separately for advice.
Bureau Report
First Published: Friday, July 31, 2009, 18:13