A note published by Ambit based on its discussion with banks, national distributors and IFAs, says that most distributors expect AMCs to share the TER cut to cushion the impact on their commission. In fact, distributors to whom Ambit spoke expect that AMCs would bear 50 to 70% of TER reduction.
The note suggests that AMCs passing on 100% of TER reduction would lose market share to smaller players.
Here are a few other key findings of the report
Investor persistency will improve but there will be some churning in the near term
A few distributors resorted to frequent churning to improve their income. However, with the ban in upfront commission, there is no incentive for distributor to churn, which would lead to better investor persistency.
However, there could be some churning in the short run as a few distributor would move their assets under advisory from low trail earnings to high trail assets. Large schemes, which have underperformed will be most vulnerable to such near term churn.
Consolidation in distribution business
Since break even in building reasonable business would now increase for distributors especially IFAs, the MF industry may not be able to add new distributors. Hence, national distributors may not have competition from IFAs. “Consequently, this increases entry barriers for this distribution business and should hopefully reduce competition that national distributors see from IFAs. This should also lower employee attrition risk for national distributors who rely heavily on employees for growth,” said the report.
Emerging AMCs would gain market share
Most distributors have so far preferred to sell large schemes of AMCs. However, distributors would start selling schemes of smaller AMCs if they are convinced about their process and performance. Many distributors will increase their offerings now in favour of smaller AMCs and hence, they could gain market share from large fund houses.
ULIPs will gain traction
Sale of ULIPs could go up with disparity between the commission structure of mutual funds and ULIPs. Moreover, ULIPs are now more investor friendly with higher tax efficiency. Distributors will also expand their offerings through other product categories such as PMS and AIFs offering attractive incentives compared to MFs.
