Fund distributors' fees dip 23% on new rules

Payout dips 23 per cent; number of individual crorepati distributors shrinks to 60 from 87

Changes in the commission structure of mutual fund distributors caused a 23 per cent decline in payout to Rs 3,648 crore in 2015-16 from an all-time high of Rs 4,729 crore in 2014-15.

Many individual distributors who made over Rs 1 crore in 2014-15 could not could not repeat their performance a year later. The number of individuals earning Rs 1 crore or more declined from 87 in 2014-15 to 60 in 2015-16.

Institutional distributors like HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank and Citibank had to contend with cuts of 20-50 per cent.

Equity mutual fund schemes, which attract higher commissions, had a record net inflow of nearly Rs 75,000 crore in 2015-16. Most of this money came through systematic investment plans, considered a long-term asset.

The Association of Mutual Funds in India (Amfi) at the behest of the Securities and Exchange Board of India (Sebi) capped the upfront distributors’ commission at 100 basis points (a basis point is a hundredth of a percentage point). The regulator also introduced trail-based commissions, which many fund houses adopted.

Fund houses earlier paid distributors higher upfront commissions. Accompanied by new fund launches, especially close-ended schemes, commissions bloated by over 80 per cent in 2014-15 to Rs 4,729 crore from Rs 2,603 crore in 2013-14.

"The year 2014-15 was extraordinary. This is not happening now with regulations on commissions in place. Investment through the direct mode is now nearly 10 per cent. I see the advisory model picking up," said CVR Rajendran, chief executive officer (CEO) of Amfi, said. Of the 100,000 distributors registered with Amfi, hardly 30 per cent were active in 2015-16.

"One should not read too much into the decline in commissions. Payment has been spread throughout the lifetime of the asset, which aligns the interest of investors, distributors and asset managers," said Sundeep Sikka, chief executive officer of Reliance Mutual Fund, India's third largest mutual fund house.

"Upfront payments were triggering transactions, trail payments will ensure assets come with a long-term orientation. Trail is a better model," said Dhirendra Kumar, chief executive of fund tracking firm Value Research.

The mutual fund industry had an asset size of about Rs 14 lakh crore in 2015-16 with an investor base of 45 million. Equity assets were valued at over Rs 4 lakh crore held by 35 million investors.