Following a hue and cry over the issue of abolishing upfront commission to mutual fund distributors selling equity schemes, industry body Association of Mutual Funds in India (Amfi) has succumbed to the demand of small fund houses to scrap the proposal.
Industry officials told Business Standard Amfi would no more pursue this proposal with the capital market regulator Securities and Exchange Board of India (Sebi). This has brought relief to fund houses, especially the smaller ones, which are either new in the industry or do not have a strong distribution network.
In response to a query sent, H N Sinor, chief executive officer (CEO) of Amfi, refused to comment on the development. Amfi, the apex body of all registered asset management companies (AMCs), was incorporated in August 1995, as a non-profit organisation. All the 44 AMCs registered with Sebi are its members.
- Amfi decides not to go ahead with its proposal to ban upfront commission
- Industry pays 1.5 - 2.5% upfront commission to distributors selling equity schemes
- Small mutual funds get relief as they struggle to build distribution networks
- Amfi says it will be unable to help if Sebi comes up with a similar proposal
- Small MFs confident that Sebi is unlikely to bring such a regulation
- Small MFs had alleged Amfi was biased towards bigger players
Fund houses pay 1.5-2.5 per cent as upfront commission to distributors to push their equity schemes. This is an additional amount of money which AMCs pay from their own pockets to distributors. From the data available with Delhi-based fund tracker Value Research, almost half the fund houses reported losses in financial year 2010-11. Last month, smaller fund players had alleged Amfi was biased towards the big boys and did not pay heed to their concerns. They even went to the extent of saying if upfront commissions were abolished, they would prefer to dissociate themselves from the industry body and form a parallel association.
Sources privy to the development said Amfi told industry players that in case Sebi itself comes up with a similar proposal, it would not be able to help.
“We, as a group of 25 small fund houses, do not think Sebi would ever come up with such a proposition. Why would anybody prevent us from paying, that too from our own accounts?” reasons the CEO of a fund house which manages close to Rs 4,000 crore in assets.
They say what has happened to the industry after the entry load ban on equity schemes since August 2009 is known to all. From the statistics available with Amfi, assets under management of the industry fell 19 per cent from Rs 7,21,886 crore to Rs 5,87,217 crore, as on March2012.
“It is killing the industry. Now, if we are taking pains to provide some sort of incentives through upfront commissions to distributors, what’s wrong in it?” asks another CEO who manages less than Rs 1,000 core in assets.
According to executives of smaller fund houses, banning upfront commission would have benefited only the larger and established brands in the industry. “They (top 10 players) have strong presence and they built their assets and network at a time when rules were not so stringent. They can leverage on their established distribution channels but we are not that fortunate as we struggle to build our network in such troubled times. Shouldn’t we have a level-playing field?” notes the national sales head of a new entrant.