MFs crank up brokerage to distributors

In a bid to attract as much money as possible and bloat their assets under management, mutual funds are cranking up brokerages to corporate distributors. In the last one month brokerages have crept up from the standard 2.5 per cent for equity money to five per cent and more.

A fund house, which figures among the top three asset management companies, in terms of assets under management, has been offering around six per cent with a target of attracting Rs 1,500 crore additional money by the end of the current fiscal.

The spike in brokerage rates has largely happened in the recent rash of initial public offerings (IPOs) of mutual fund schemes. In the mad scramble to get as much of the investors money as possible, AMCs have been offering astronomical rates to distributors.

Among corporate distributors, the pace of incentivisation - in the form of trips abroad and gifts - have also intensified.

'Either they pay them these high brokerages or they incentivise them in other ways," said the chief executive of a middle order fund house.

In fact, medium-sized and smaller fund houses find themselves under extreme pressure as their AMCs are unable to match the financial clout of the larger fund houses, especially those which have a foreign parentage. 'Big AMCs are just squeezing out the smaller ones," said the chief executive.

Ashu Suyash, head of Fidelity Investments in India and yet to commence mutual fund operations said, "it puts a lot of pressure on new entrants in this area.

Smaller distributors point out that in such time when the chase is on for the big bucks, retail distributors are left out.

"It is only when the institutional and corporate money flows out that they come to us," a small distributor, focussing on retail money, said.

The increase in brokerages is not only in the case of equity schemes but has happened in liquid schemes as well.

Now is also the time when mis-selling takes place and in fact one prominent fund house has received letters of protest from investors, who invested in the scheme under the mistaken impression that it offered Section 88 benefits.