Select fund houses opt out of transaction fees to distributors
Some fund houses are opting to stop payment of transaction charges to distributors over operational issues and customer dissatisfaction.
The largest fund house SBI Mutual Fund (MF) recently joined the likes of DSP MF, PGIM India MF and Quantum MF to discontinue the payment.
“The payment was discontined keeping the operational challenges and customer dissatisfaction in mind,” said DP Singh, Deputy MD and Joint CEO, SBI MF.
MF regulations give MF distributors the option to charge a transaction fee of ~100 to ~150 for every lumpsum investment or registration of a systematic investment plan (SIP), provided the investment amount is above ~10,000. Fund houses make the payment by deducting from the investors’ investment amount, impacting the number of units allotted to the investor.
According to MF officials, while only a small set of distributors opt to avail the transaction fee, the option opens the scope for ‘splitting of transactions’ and customer dissatisfaction.
In September 2022, the Securities and Exchange Board of India (Sebi) asked the Association of Mutual Funds in India (Amfi) to identify and block MF distributors who indulge in ‘splitting of transactions’ for higher transaction fees.
The markets regulator said it had identified several instances when MF distributors invested clients' money in MFS through more than one application when it could have been done in one go.
For example, ~30,000 invested through three applications of ~10,000 each to earn ~450 as a transaction charge. As a result, the net investment amount would come down to ~29,550.
Post the Sebi letter, Amfi gave Asset Management Companies (AMCS) the option to discontinue the payment.