Brokerages plan to revise cost structure for mutual fund distribution
July 31, 2009
The mutual funds (MF) distributors are now planning to revise their transaction cost structure to attract investors as the cost for buying units in a mutual fund has been abolished from Saturday. The distributers believe that it will increase sales, reports PTI.
The distributors are waiting to see whether asset management companies (AMCs) doles out distribution commission for various MF schemes. Based on this, they (distributors) would fix advisory commission from the customers.
On 18th June, market regulator Securities and Exchange Board of India (SEBI) urged all mutual funds not to deduct marketing and distribution charges from investments made by subscribers.
"Days of easy and guaranteed money for distributors are a bygone. AMCs need to sacrifice their margins now and pay the distributors or they can mop up advisory commissions from the investors linked to certain schemes. However, big distributors will remain unhurt," SMC Capitals equity head Jagannadham Thunuguntla said.
Distributors believe that, although in the short term, their revenue might be affected, but in the medium-to-long term, it would pick up as more investors will come in.
"Volumes will pick up in the medium-term as investors would start showing interest gradually. Though there would be some stress on revenues in the short-term, in the medium term, more buying interest would start pouring in from investors," ICICI Direct executive director Anup Bagchi said.
Leading retail brokerage ICICI Direct has announced variable fee structures for high net-worth individuals (HNIs) and retail investors. It has introduced a nominal fee of Rs30 for systematic investment plans (SIP) and Rs100 for investment below Rs800,000. If the cumulative MF holding with ICICI Direct is more than Rs800,000, the investors need not pay any commission, the brokerage house said in a note to its clients.
"With the entry load removal, clients deserve a transparent rate cut. We are encouraging investors to consolidate their investments with ICICI Direct so that, we can provide value-added services which include research and portfolio analysis, free of cost," Bagchi added.
An entry load up to 2.25% is levied by an MF to meet its marketing costs and distribution commissions. Brokerages are now planning to break up their service portfolio and charges for that.
"Maybe, brokers would charge for the transaction services separately for the customers who want advisory or support services. That would bring in clarity in the commission pattern," Thunuguntla added.