The number of distributors opting in for transaction charges has gone up to 9000, which was around 6000 earlier.
Absence of clarity on rollback of entry load and whispers of ban on upfront commission has led more distributors to opt for transaction charges.
According to sources, there has been a 50% jump in the number of distributor’s opting for transaction charges. When the incentive was first introduced by SEBI last year, out of the 40,000 KYD compliant ARNs, around 6,000 had opted in. Now, the number has gone up to more than 9,000. The window for changing status on transaction charges was open from March 1 to March 25, 2012.
“The numbers show the strain on revenues. This (transaction charge) at least takes care of their (distributors) staff salaries. Apart from banks and NDs, transaction charges also make sense for distributors in non-metros. Distributors catering to corporate and retail investors are in a dilemma because companies don’t want Rs. 100 to be deducted from their investments due to accounting issues. Financial planners catering to HNIs would not opt for transaction charges because it would block a hindrance to collect fees,” says a distribution head of a private sector fund house.
National distributors like Bajaj Capital, NJ India, Prudent, Karvy Stock Broking, who bring a substantial chunk of business for AMCs, have opted in since the introduction of transaction charge. For NDs and banks, even Rs. 100 translates into good cash flows. For instance, if an ND gets one lakh new SIPs in a year, this translates in to one crore as income. On the other hand, if an IFA brings in 500 new SIP applications in a year, this translates into Rs. 50,000 as income.
Industry officials say that many new IFAs have opted in this time. Distributors are allowed to change their status on transaction charge twice a year. Distributors are not allowed to charge one set of clients and not charge other clients. They have to either opt in or opt out completely. Thus, resistance from a few clients sometimes forces distributors to opt out of transaction charge.
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