MF distribution payouts at 3-year low

The income of mutual fund (MF) distributors declined in 2019 -20 (FY20) as gross amount paid by fund houses slipped to a three-year low of ~6,134 crore. The payouts were 22 per cent lower than the previous year ’s tally of ~7,938 crore.

Market participants attribute this to a combination of factors. “Fund houses are looking to control costs by rationalising commissionlinked structures. As more fund houses get listed, the commissions may fall further because MFS will look at further optimising their overall cost,” said Srikanth Matrubai, chief executive officer of Srikavi Wealth.

“There has been a nudge towards direct channels. The value of assets has also been affected amid the market correction,” said Dhirendra Kumar, founder and chief executive officer of MF tracker Value Research.

Assets under direct plans accounted for 47 per cent of the overall industry assets as of May. The markets regulator, Securities and Exchange Board of India (Sebi), had also tried to encourage growth of direct plans in the past.

Through direct plans, investors can bypass a distributor and save on total expense ratios (TERS), as distribution commissions are embedded into TERS.

Larger distributors have also seen a cut in receipts. For Axis Bank, the gross amount payout is down to ~415 crore, which is 25 per cent lower than the previous year. State Bank of India (SBI) has seen the payout fall 23 per cent (~374.9 crore). HDFC Bank has seen an impact of 40 per cent (~294 crore), while ICICI Bank has seen a dip of 47 per cent (~185.64 crore).

NJ India Invest — the country’s largest distributor in commission terms — saw a 3 per cent dip in payouts in FY20.

Market participants say regulatory changes have also put constraints on MFS’ ability to incentivise distributors. “New regulations clearly state all scheme-related expenses need to be borne by the concerned scheme,” said Matrubai.

Earlier, fund houses could bear scheme-related expenses, such as distribution costs onto their books, instead of booking it fully into the schemes.

Also, upfront payout of the commission has been barred in the MF i ndustry since October 2018.

The slowdown in equity flows, which are higher-yielding products, has also contributed to the dip. In FY20, equity schemes garnered ~83,787 crore worth of inflows, 25 per cent lower than the previous year’s tally of ~1.1 trillion.

The weakness in market sentiment has led to higher redemptions and value erosion, reducing the size of assets handled by distributors.

In FY20, the Sensex has corrected over 20 per cent, after seeing a strong rally in the previous financial year.