UTI Mutual Fund and Sundaram MF currently incentivize their distributors every month. More fund houses are likely to follow suit if demand from distributors persist
Mumbai: Faced with lower margins in the absence of high upfront brokerage, distributors are urging fund houses to incentive them on a monthly basis in the form of trail commission which is currently paid on a quarterly basis by a majority of fund houses.
After the abolition of front loads, trail is the primary source of income for IFAs.
Currently, fund houses like UTI and Sundaram Mutual Fund pay trail commission every month to their empanelled distributors. UTI MF in fact releases two cheques in a month.
According to sources, Birla Sun Life MF is planning to shift to a monthly model from April 01, 2011. Axis Mutual Fund also may consider shifting to monthly payout model.
Trail commission of around 50 basis points is paid by the asset management company to distributors for servicing investors on an ongoing basis. Fund houses either credit the distributor’s bank account or issue a cheque depending on the choice of distributors.
Distributors say that a steady flow of monthly income will help them maintain their cash flows and fund their working capital requirements.
Fund officials claim that they don’t find it feasible to pay on a monthly basis if the amount of commission involved is less. The trail commission is directly proportional to the quantum of investor’s money parked in a scheme and its current value. If the market goes up, trail increases and vice versa.
“We haven’t taken a call yet but if the demand comes, we can do so. If more distributors demand I don’t see this as a big issue. We can do so if the quantum of brokerage is high,” says Vijai Mantri, Managing Director & CEO, Pramerica Mutual Fund.
“Few fund houses have already made the shift. We just have to rework our systems. We may look at it but haven’t made a final decision yet. It has some difficulties but it’s not impossible,” said a sales head of a midsized fund house.
