Lenders earning more commission by selling in house MF schemes

By: and |
Published: July 20, 2019 1:40:45 AM

Not being affiliated with any bank makes us and other fund houses an unbiased business and we are comfortable with that.”

Of the total commission that Union Bank of India earns, 98.7% comes from selling schemes of Union Mutual Fund.

Banks constitute an important channel of distribution when it comes to mutual funds as they have a ready catchment of customers. Data collected by Prime Database have thrown up a rather disturbing trend on the funds that banks are distributing.

In FY19, public sector banks earned between 70% and 100% of commissions from selling their in-house MF schemes. Suitable mutual funds are generally recommended after understanding financial goals of investors. However, most funds sold do not necessarily align with financial goals of investors. Data shared by Prime Database reveal that PSBs focus more on selling their in-house MF schemes than those from other houses.

Canara Bank, Union Bank of India, State Bank of India, Bank of Baroda and IDBI Bank’s proportion of commission is among the highest from their own group schemes. Of the total commission that Union Bank of India earns, 98.7% comes from selling schemes of Union Mutual Fund.

“When we started our operations as Union KBC MF, the focus was to distribute products predominantly through Union Bank. That is the reason that in our six-seven years of existence, there was hardly any business from other distributors. But after Dai-chi Life Holdings came on board in 2018, we are trying to expand our distribution network and there has been a lot of active empanelment of independent financial advisors (IFAs). Our goal is that we should have around 50% of our business coming from outside of Union Bank in the next two-three years,” said G Pradeepkumar, CEO, Union Asset Management.

“It is quite a worrying trend because it shows that there is a huge dependency on in-house distributors. At the core of it is the conflict of interest because out of the bouquet of over 500 schemes across 30 different fund houses, they are suggesting what is right for the customer or focusing on selling what your in-house fund has. MF is primarily meant for retail investors and they need to be guided in the right direction,” shared Pranav Haldea, managing director at Prime Database Group.

CEO of a leading private mutual fund said on condition of anonymity that products should be sold which is good for investors and not for banks or IFAs. “Ideally, investors should have four-five different schemes from more than one fund house to have diversification. But, here banks try and sell schemes of only the in-house fund, which is purely mis-selling and conflict of interest…”

Swarup Mohanty, CEO at Mirae Asset Global Investments, said: “As an asset manager, our job is to create good products. If fund managers create good products people will select them. Not being affiliated with any bank makes us and other fund houses an unbiased business and we are comfortable with that.”

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