The decision of Association of Mutual Funds of India’s (AMFI) board on Monday to cap the upfront commission paid in case of equity mutual funds at 100 basis points or 1 per cent has created a rift between the large players and the small & medium sized mutual funds. The smaller firms are alleging that the decision will restrict their ability to compete with the large fund houses.
Industry insiders confirmed that on Tuesday several small and medium sized players wrote to AMFI suggesting alternatives to the board’s decision, while registering their dissent against the move. However, when The Indian Express contacted HN Sinor, chief executive of AMFI, he said, “Not one letter has been received by AMFI.”
The CEO of a medium sized fund house said that a few large players are taking the decisions that best suit their interests. “We don’t approve it as it limits our ability to grow. In any case, the commission that we pay is within the Total Expense Ratio limit that the investor pays, so there is no additional burden on the customer,” said the head of a medium sized fund house.
Another medium sized fund house CEO said that AMFI’s decision to cap upfront commissions at 1 per cent in the name of mis-selling is not applicable to cities beyond top 15 (B-15 category). “How can one justify this. Since the understanding of MFs is not much in B-15 cities, there are more chances of mis-selling there and hence the cap is more relevant there,” said the CEO who did not wish to be named.
The head of another small sized fund house also stated that the decision takes away their ability to compete on pricing. “Pricing is an important aspect of doing business and by putting a cap on pricing they are taking away my ability to compete.” He further added that various players are at various stages of lifecycle within the industry and this will curb the growth of small and new players.
Another fund house CEO added that the AMFI board was also considering to put a cap of 60 per cent even on trail commission but the decision was scuttled because of resistance from small and mid sized players.