The 1% upfront commission cap which came into effect from April 2015 has hit the upfront revenues of top distributors’ last fiscal. The latest AMFI data shows that the gross commissions earned by the top 500 distributors dropped by 23% or Rs. 1,098 crore from Rs. 4,745 crore in FY14-15 to Rs. 3,647 crore in FY15-16.
There are 99 distributors who earned commission revenue of Rs. 1 crore last fiscal.
In FY14-15, the industry launched a slew of closed end funds to cash in on the bull run of 2014. Some AMCs reportedly paid 5-6% upfront commissions in these funds which invited the ire of SEBI. Subsequently, SEBI through AMFI, imposed a 1% upfront cap on upfront commissions.
Some distributors say that the upfront cap will be beneficial for the industry in the long run. “The industry has moved from high upfront to trail model and this is good for the industry. Only serious players opt for trail model,” says Satish Pandey of Imperial Investment Consultancy.
Hemant Rustagi of Wise Invest Advisors is of the view that the trail model will help the industry reduce churning to a large extent. “In a trail model, your focus is not on immediate earnings. This ensures that your revenues are tied to the tenure of the investment.”
Gross commissions earned by top 500 distributors
While the commissions dropped last fiscal, the assets under management of the industry recorded a growth of 14% during the same period. This was primarily due to healthy inflows (Rs. 74,026 crore) in equity funds last fiscal. “Investors expected that the 2014 bull run would continue in 2015. They poured money in equity in FY2014-15. The inflows were ‘market driven’. Due to the recent volatility, the inflows in equities are now slowing down,” points out Satish.
While the commission earnings have dropped last fiscal, the earnings of distributors are rising consistently since the last five years. From Rs. 1,800 crore in FY 10-11, the commission revenues have gone up to Rs. 2,603 crore in FY13-14 and reached a peak of Rs. 4,745 crore in FY14-15. This is because the AUM of the industry has also gone up from Rs. 5.92 lakh crore in FY10-11 to Rs. 12.32 lakh crore in FY15-16, a growth of 108%.
The number of distributors who fit SEBI’s definition of ‘top distributors’ has gone up from 403 in FY10-11 to 497 in FY15-16. According to SEBI, top distributors are those who received commissions of over Rs. 50 lakh from a single mutual fund or over Rs. 1 crore commissions per annum across industry or those who have raised AUM of over Rs. 100 crore across industry in the non-institutional category but including high net worth individuals (HNIs) or have multiple point of presence (more than 20 locations).
