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Sundeep Sikka, chairman of the Association of Mutual Funds in India, says: “It’s a good trend. I am hopeful more people would be encouraged to join MF advisory and distribution."
Higher upfront and trail commissions have aided many distributors. Further, a rise in gross sales of equity products in the second half of FY14, the category which helps distributors earn more, resulted in higher payments.
Arvind Sethi, chief executive officer of Tata MF, says: “Commissions are higher than what was being paid earlier.” According to sector officials, on an average, the overall commission is at least one percentage point. This means any distributor with an asset size of Rs 100 crore or above will be in a position to earn Rs 1 crore.
However, it is not an easy task to reach that scale. These distributors have spend over two decades in this business. It is interesting to note that since the abolition of entry load on equity MFs, there has been a drastic fall in independent financial advisors, from over 100,000 to less than 40,000.
According to Akshay Gupta, group executive head (asset management) at Indiabulls, these individuals are few but were serious and committed about the MF business. “I know many distributors who brought in Rs 200-300 crore as they have been in business for over 20 years and have good clients,” he says. He adds that higher equity sales after September last year had helped several distributors mint higher commissions.
The sector witnessed a large number of close-ended equity schemes, with higher upfront commissions reaching as high as six percentage points. These products came with a lock-in of three to five years. Reliance MF, ICICI Prudential and L&T MF were amont these. Recently, gross sales of equity had surpassed Rs 10,000 crore, probably the highest in the sector’s history.
The Securities and Exchange Board of India’s impetus on going beyond the top 15 cities has also helped distributors earn, as fees have gone up from 2.5 per cent to nearly three per cent. Of this, close to 60 per cent goes only as commission payout.
“Distributors who are serious have more bargaining power now. Earlier, the trail commission used to be 50-60 basis points; it has gone up to a percentage point. In almost all categories of funds, commissions have gone up," says Siddhartha Singh, chief executive of Pinebridge Investments.
For 2013-14, overall commissions paid by the funds sector were Rs 2,582 crore against Rs 2,389 crore a year before, a rise of eight per cent.
