In the financial year 2010-11, top fund houses in the country paid commission of over R1,300 crore to their distributors. Bulk of the commissions were paid to the large banks and national distributors, indicating lesser dominance of smaller distributors and independent financial advisors (IFAs) in the mutual fund industry.
Reliance MF paid a commission of over R330 crore to its distributors while HDFC MF paid commissions of over R 288 crore in the financial year 2010-11. ICICI Prudential MF gave away R146 crore to distributors as commissions during the same period. Out of over 1,300 crore given to the distributors, most of money were paid to bank distributors such as HDFC Bank, Hong Kong and Shanghai Bank, Citi Bank and Standard Charted Bank along with national distributors like NJ India.
Dhirendra Kumar, CEO at Value Research says, ?Large banks and distributors have larger reach as compared to small distributors, so it gives them (the former) the edge. Apart from that, big players are aggressive sellers, so they get most of the commissions.? Earlier in August, market regulator Securities and Exchange Board of India (Sebi) in its circular had asked all the fund houses to disclose commissions paid to the distributors.
A CEO from the leading fund house said, ?It?s difficult to survive when most of the smaller fund houses are reporting losses and big fund houses are paying commissions from their pocket to acquire clients. For the industry to grow in the next 10 years, it will be important to acquire clients cheaply than it is today.?
Currently, upfront commissions are given in the range of 1-2% to distributors while trails commissions are paid anywhere in the range of 0.5-0.75% for a year.
Deepak Kumar Chatterjee, MD and CEO of SBI MF says, ?Higher commissions payout from the industry is a cause of concern as it also hits the profitability. But if we look at SBI then payout of commissions have been lesser compared to other fund houses. Mutual Funds still remains a push product. So as equity market surges in the next few years, we expect a lot of participation from the retail investors, which in turn will be positive for the industry.?
SBI MF in 2010-11 paid commissions of over R96 crore to its distributors. ?If we look at last few years then most money in the industry is only coming through systematic investment plans (SIPs) and cost of acquiring that investor is too high, so the commissions were big. But with transaction charges again coming in the industry we believe that small players might again sell mutual fund products,? said a senior marketing officer of a fund house.