Distributors’ commission in MFs down 23% in FY16

Mumbai, June 30: Capping of upfront commissions at 1% has resulted in lower distributor commission in the Indian mutual fund industry in the last financial year. Latest data from the Association of Mutual Funds in India (Amfi) show that gross commission and expenses paid to distributors during FY2015-16 stood at R3,647.63 crore, down by 23% as against R4,744.57 crore in previous financial year.

Since the start of April 2015, Amfi had asked all the fund houses to cap upfront commissions at 1% and majority of all fund houses had agreed to comply by the new rule after some resistance initially.

“It’s quite surprising that commissions have fallen for the distributors even as there has been strong inflows into equity funds and new addition to the distributors in the beyond-15 (B-15) cities. This could have been largely due to the capping of upfront commission by the industry trade body,” said the CEO of a top fund house. The assets under management (AUM) from B-15 towns in retail segment has increased by 26% from R108,184 crore as on March 31, 2015 to R135,806 crore as on March 31, 2016, an increase of R27,622 crore.

Last financial year, equity mutual funds which also includes equity-linked saving schemes (ELSS) saw net inflows of over R74,000 crore, while the broader Sensex was down by around 9.4% weighed down by global slowdown concerns and muted earnings growth. While upfront commissions are capped at 1%, fund houses usually pays trail commissions in the range of 50 basis points to 75 basis points (100 basis points =1%) to distributors as long as investors stays invested in the scheme.

“In FY2014-15 we had seen huge upfront commissions be- ing paid by fund houses by launching close ended schemes. Even equity markets were on rise and distributors earned huge commissions by selling them to retail investors. Capping was brought in to stop this huge commission payment, regulator and Amfi have succeeded in curtailing upfront commissions which were eventually going from our own pockets,”said another MD and CEO of a leading fund house.

In last financial year, banks such as HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Citi Bank and Axis Bank top commission earners from mutual fund industry.