Distributors get trail commission if an investor changes MFD through STP route

One of our readers wrote to us with this query:

A client has invested through a large broker but he is not happy with the performance of schemes suggested to him. In fact, there were a few thematic schemes which are underperforming for years. He is my client and wants to move his investments from his broker to my ARN through STPs. I would like to understand if I would get trail commission on this business since this is change of broker from investors’ end?

Name withheld

Dear MFD,

Thanks for writing to us.

Yes, you are entitled to get trail commission if an investor transfers his assets to your ARN via STP route.

While you are right that if an investor changes distributor, there will be no trail commission on such a transaction. However, this rule does not apply to STPs. 

STP is basically redemption from source scheme and reinvestment in target scheme. Remember that there will be tax incident on such a transaction.

Needless to say, you need to do risk analysis of your client and justify the reason for doing such an STP.

Hope we have addressed your query. Have a great day at work!