Expect no major surprises from AMCs for distributors after SEBI nod on free usage of exit load corpus for marketing expenses
Mumbai: With market regulator SEBI giving some respite to use exit load corpus for marketing expenses, fund houses are in no mood to hike upfront commissions across the board for distributors. For many, it’s largely a wait and watch game as to how the load corpus would be utilized.
Some top fund houses are expected to use this corpus for investor awareness campaigns and advertising purposes. The larger MFs naturally stand to benefit from this rule while the new and small funds are feeling let down.
Fund houses do not intend to promote churn among investors. “How fund houses use this flexibility to utilize the exit loads would differ from one fund house to another. Remember that the exit load is charged when investors move out within a certain period. You can’t change your business model because of it,” said a CEO of a bank sponsored fund house.
With SIPs gaining more traction, retail long term investors do not exit early. According to CAMS, their clients have witnessed an average of seven lakh new SIP registrations per month from February 2010 to January 2011. Fund houses are aggressively promoting the mantra of long term investing in their investor awareness campaigns across the length and breadth of the country.
“Upfront is already being paid out of our pockets. I don’t see any reason why AMCs will hike upfront commissions,” said a marketing head of one of the largest fund house.
“We haven’t decided yet but it is unlikely that we will increase the commissions across the board. The idea is not to use the entire corpus for payouts and increase distribution cost. A lot of exits that have happened in the last two years are exits after a two-year time horizon. We haven’t seen many such exits which are within one year,” said a sales head of a large sized fund house.
The sense on the ground is that there would be no across the board hike. Fund houses may offer slightly higher commission on target based collections, a practice which is already being followed by majority of AMCs. Currently AMCs offer 0.25 per cent to 0.75 per cent trail commission annually for equity schemes.
“It’s a wait and watch game for everybody. I feel that there will be an impact on brokerage. It may be based on target. We were not carrying forward the balances in load account unlike other fund houses. That’s why the regulator has put restriction of one-third usage of load corpus. We will be at a disadvantage compared to larger AMCs. Before March 2010, SEBI had written to AMCs asking them about their holdings in loads. Big AMCs went on an advertising blitzkrieg soon after that fearing that the regulator would ask them to write it back to scheme. Advertising is the only way they could have spent the money. But SEBI didn’t do anything like that, so these guys stopped advertising,” said a top official at a private sector fund house preferring anonymity.
“We are maintaining status quo at this point of time. We will try to use it. But I don’t think that would tantamount to large scale increase in brokerage. The hike would not be substantial. It could be a minor tweak of upfront and trail,” said a national head of a midsized fund house.