Incentives likely for MF distributors

Regulator working on a proposal for revising the existing commission framework

Distributors crying foul over the lack of enough financial incentives for selling mutual finds could get some relief in the days ahead, with the Securities and Exchange Board of India (Sebi) considering a revision in the commission structure, say two sources privy to the matter.

It was expected Sebi’s investment management department would take up the proposal with the Sebi Board, said one of the sources. “There has been talk of a change in the commission structure. It is hoped there will be some more incentives for distributors,” said the other source.

It was likely the fees and commission paid to distributors for the sale of mutual fund schemes would be increased, said the first source. The proposed revision is based on feedback from companies in the sector.

Currently, there is no entry load on mutual funds. This means no money from the initial investment is used to pay the distributor’s commission. Earlier, there was an entry load of two per cent — when an investor put Rs 100 into a fund, only Rs 98 would actually be invested; Rs 2 would be paid to the distributor.

After this structure was banned in August 2009, mutual funds paid distributors for fresh investments, experts said. Distributors are also paid trail commission, depending on the period for which the investor has stuck with the fund. For their services, distributors can also charge customers directly.

Sebi has also approved transaction charges of Rs 100 for transactions worth more than Rs 10,000 and Rs 150 for first-time investors, according to the regulator’s master circular on mutual funds.

These incentives, however, pale in comparison to those for selling products such as insurance schemes with an investment component.

The number of registered mutual fund distributors has fallen about 40 per cent compared with a high of 105,300 at the end of 2009-10, the year the entry load ban was first announced. At the end of 2013-14, the number of registered mutual fund distributors stood at 60,372.

“If Sebi is planning to revise the fee structure, it should do it in such a way that distributors should be incentivised without adding any pressure on the pockets of investors,” said Raunak Roongta, an independent financial advisor.

In 2013-14, there were 8,178 net additions to the ranks of mutual fund distributors, the first rise in three years. At the end of 2012-13, the number stood at 52,194.

An email sent to a Sebi spokesperson did not immediately receive a reply.