Distributors flock to MFs as returns and flows improve, shows data

Industry onboards 11,600 distributors since April, over 2x FY23's

An improved showing of mutual funds (MFs) is helping the industry attract distribution talent at a brisk pace. The industry has onboarded a net of 11,600 individual distributors in the first seven months of 2023-24 (FY24) compared to just 5,555 distributors in the whole of 2022-23 (FY23), according to data from the Association of Mutual Funds in India.

Like most financial products, MFs also have significant reliance on individual distributors to sell their products, even as digital platforms are gaining popularity.

As of October 2023, distributors, banks included, accounted for 57 per cent of the Rs 46.7 trillion assets under management (AUM) of the MF industry. The rest of the AUM was in direct plans, which are mostly sold by online platforms.

According to MF executives, the rise in interest in MF distribution is a result of the growing acceptance of MFs among the masses and the rising commission pool.

Unlike most other financial products, the income of MF distributors is linked to both the business they bring and the performance of the equity market. Distributors get a percentage of the market value, not the face value, of the investments that they have brought in. The percentage is determined by fund houses and varies from scheme to scheme. For active equity schemes, it is generally around 1 per cent a year.

“The interest is high owing to a range of factors, from the rising viability of the business due to digitisation to concerted efforts from the industry to highlight the advantages. For us, individual distributors are key to our plans to widen our presence, and efforts are being made to augment the network. Also, we are seeing interest from insurance agents as they are looking to diversify their offerings,” said B Gopkumar, managing director and chief executive officer (CEO), Axis Asset Management Company (AMC).

“The growing acceptance of MFs, as evident from the rising inflows through systematic investment plans, has made MF distribution an attractive proposition. The efforts from AMCs, at the industry level, have also boosted interest," said Suresh Soni, CEO, Baroda BNP Paribas MF.

The new additions in FY24 have pushed the total active distributor count to 133,411, which is 52 per cent higher than the March 2020 tally of 87,630.

“The surge can be attributed to a multitude of factors, with the rising awareness amongst investors being at the top. The demand for MFs is on the rise due to the simplicity and affordability of the product,” said Misbah Baxamusa, CEO of NJ Wealth, the largest MF distributor in India.

Smaller towns have outpaced the top 30 cities in terms of net distributor addition. In the April-October 2023 period, a net of 5,524 individuals has taken up MF distribution licences in the top 30 (T30) cities compared to 6,078 registrations from beyond the 30 (known as B30 in MF parlance) cities.

With higher growth, the B30 distributor count at 66,414 is now close to overtaking the T30 tally of 66,997.

The commission income has grown sharply in recent years for distributors and banks on account of surging inflows and market rally. During FY23, the top 1,700 distributors (including banks), who account for around 60 per cent of the regular AUM of the industry, raked in Rs 12,000 crore as gross commissions. This is 16 per cent higher than the total payout of Rs 10,400 crore they received in 2021-22.