Faced with net outflows from
equity schemes, some leading Indian mutual fund (MF) houses are indirectly
funding contests for agents of big distributors that promise upfront incentives
for each systematic investment plan (SIP) application.
Since April, equity schemes of
MF houses have seen a net outflow of Rs 17,534 crore, data on the Association
of Mutual Funds in India website show. More than half this outflow was in the three
months ended November 30.
“Mutual funds are forced to pay
upfront incentives to top distributors to garner equity assets,” said a sector
official, on condition of anonymity. “To avoid the regulatory scanner, the
contests run by distributors for their agents are indirectly funded by MF
houses. This is done by various ways, like giving an advertisement in the
magazine or website run by the distributors.”
A New Delhi-based leading MF
distributor is presently running one such contest for its agents. For fresh
equity SIPs of Rs 1,000-1,999 and having tenures of three or more years, the
distributor is offering Rs 130 per application. For an equity SIP of more than
Rs 2,000 and tenures of three or more years, he is giving Rs 300 per
application.
In another contest for schemes
of an MF house sponsored by a South Korean financial services company, the same
distributor is offering Rs 200 per SIP application of Rs 1,000 having a tenure
of 24 months to as much as Rs 5,000 per SIP application of Rs 10,000 with a tenure
of 60 months.
In one of the terms of the
contest, the distributor has mentioned that in case the SIP is discontinued,
the incentive will be reversed and recovered from the ongoing brokerage.
“However, generally, if the SIP continues for an year, the distributor doesn’t
reverse the incentive,” said an official working for an MF distributor.
This per-application incentive
is in addition to the upfront and trail commissions of about 1.5 per cent to
1.75 per cent given to the agents.
The Securities and Exchange
Board of India had last year banned the entry load on MF schemes. After that,
MF houses have to pay all upfront incentives and commissions to distributors
from their own pockets. Before the ban, fund houses used to charge about 2.25
per cent load on equity schemes and pass these on as commission to
distributors.
Hey there,
ReplyDeleteNice blog
check out our blogs
buy youtube views india paytm