MF News Is the distribution landscape changing after upfront commission ban?

Is the distribution landscape changing after upfront commission ban?

Jury is still not out on whether the recent decline in gross equity sales is due to the upfront commission ban or other market conditions.
Nishant Patnaik Dec 5, 2018

Over the last few days, there has been a lot of talk about the impact of the SEBI circular banning upfront commission and enforcing a compulsory shift towards all trail model. Though it is difficult to predict the long-term impact of the move, going by the first indications, the short-term impact is not in favour of the industry.

The latest CAMS data that covers 86% of industry shows that the mutual fund industry has witnessed a decline of approximately 43% in equity gross sales in November.

While the industry has seen a decline across all distribution channels, it is steeper at banks - 53%and private client groups (PCG) - 56%. Banks and PCGs were far more dependent on upfront commissions than IFAS. NDs and IFAs recorded decline of 37% and 40% respectively in terms of gross equity sales.

This trend has raised key questions for the industry: Is this decline structural or transient; and is the distribution landscape changing in favour of structured products like AIFs, PMS and other competitive products like ULIPs and NCDs?

A CEO of a large fund house requesting anonymity believes that the decline is temporary. “Retail equity AUM will grow despite competition from other products. However, distributors servicing HNI clients who are dependent largely on upfront commission may no longer continue to offer mutual funds.”

Srikanth Meenakshi, COO, FundsIndia looks at it differently. He said, “While I agree that ban on upfront commission has affected the industry growth structurally in part, the decline in November gross equity sales is also due to festival season. There were only 19 business days in November. Also, many investors are in wait and watch mood due to elections.”

Meenakshi further said that HNI money is moving to structured products while conservative retail investors have started looking at fixed income products such as NCDs and bank FDs as yields have become lucrative. However, middle class and upper middle class would continue to invest in mutual funds through SIPs, he added.

A Balasubramanian, CEO, Aditya Birla Sun Life Mutual Fund feels that industry would continue to grow. “I agree that the industry has been witnessing a decline in terms of equity gross sales but it will be short term. Once the dust settles down, the industry will continue to attract inflows from retail investors through strong SIP flows despite upfront commission ban.”

Seconding his view, Neeraj Choksi, Co-Founder, NJ India said that decline in equity gross sales is largely due to IL&FS fiasco and it has nothing to do with ban on upfront commission. “Though a fraction of HNI money has started moving to structured products, retail investors would continue to put faith on mutual funds through SIPs.”

Hemant Rustagi of WiseInvest Advisors feels that this decline has nothing to do with brokerage structure. “A distributor puts a lot of efforts to acquire a new client. A distributor meets his prospects several times before converting him into client. A mere change in commission structure may not affect such efforts. Also, most large IFAs have been following all trail model for years and nothing has changed for them. It is too early to ascertain the impact of ban on trail commission but in my view, change in upfront commission would be disruptive for banks and budding distributors.”

On shifting towards structured products, Rustagi said, “Structural products are complex in nature. Even HNIs do not understand such products. I don’t think there will be shift to other products post ban on upfront commission as mutual funds are far superior products in terms of transparency, liquidity and performance.”

Going by the initial trends, the ban on upfront commission may shift distributors servicing large clients to other financial products such as PMS, AIFs and ULIPs but distributors catering to retail investors would continue to offer mutual funds.

Gross equity flows (Figures in Rs.crore)

Distributor type









Average gross sales till September

Fall in October

Fall in November





















































































Grand Total













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vivek · 4 months ago
nice analysisi
Sanjay Jotwani · 4 months ago
The mutual fund equity sales decline is not temporary. The decline has just started and the equity mutual funds sales will go further down and down. The commission's are too low and even less than the costs of distribution. Industry needs to be ready for further challenges.
Amrishh Ashar · 4 months ago
Very True Sanjay. Stoppage of upfront commission will definately affect Mutual Fund Business / Turnover. People who do not accept this fact are out of sync with the ground realities.
Rakesh Lahori · 4 months ago
I agree to that.
Anurag Dureha · 4 months ago
I agree with Sanjay. The impact may not be seen by the decision-makers, sitting within the four walls and working only on data received, the ground reality is felt and understood by the people in the field...the IFAs.
I really wonder if SEBI wants to eliminate the community of IFAs by reduction in their income and incentives and also by encouraging the investors to go for DIRECT schemes. While an advisor is mandatorily required to study and pass an exam, for the investor, to invest in DIRECT schemes, there is no such requirement. S/he is being urged to go for DIRECT schemes, bypassing the IFAs and thus risking her/his investments and financial future.
DINESH MAHAJAN · 4 months ago
I too agree that one should be paid for his services, but in Mutual Funds payout was already low but with banning upfront all will get a hit.
Rajesh Hattangady · 4 months ago
The distribution landscape will be stark in banks and ND's, with a clear shift towards life insurance and PMS offerings. While it's said many IFA's are in all trail, almost 90% of IFA were still following either hybrid or upfront models. The sales from tier II & III would see a downward trend for sure. The entire game plan has shifted from quality advise to volume game
Vikas · 4 months ago
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Karan · 4 months ago
Brokerage Payments by ND's will reduce drastically. Mostly small Sub Brokers will be affected.
Sudhakar · 4 months ago
Sub broker won't be affected. They have alternative product
Sudhakar · 4 months ago
Mutual Fund employees will be affected. Becos, They won't get support from IFA's client and MF employees source direct client for getting 0.10% per month
Rakesh Chaturvedi · 4 months ago
Mutual funds are better options instead of endowment plans & ULIPs , but industry wants to sell other products instead of Mutual Funds. If there is no incentive how can grow the industry?
SATISH SHAH · 4 months ago
I agree, Due to above decision major effect on our regular income. We already taken home loan & vehicle loan. our EMI fixed accordingly. But due to sebi decision our regular income fall. We are in trouble to fulfill regular expenses & regular EMI. The only solution we have to shift our major business to ULIP & insurance products for maintain our regular income.
DEVESH · 4 months ago
Agree, If SEBI don't want it's ok but now trends reverse all direct customers confused about the return and contact in AMC office now not getting reply from AMC office they're coming back to Ifa now games change Ifa shift to other structure products. What is SEBI director action? The AMC customers went to Insurance.I am watching n confident IFA lost two months but AMC lost customers and Aum. For this Dipak parekh responsible. I am sure one man show dectect but when entire forces decided then one man zero. Still time is not gone rethink. Otherwise bad days coming for AMC. In rule of Modiji.sure arrogant SEBI will be thrown from eyes of Staff of AMC, IFA and direct customers. Direct customers not handle properly by any AMC office. I have seen n eye witness in SBI mutual fund and HDFC Amc office as well as in Icici, Reliance . The bunch of Joker's in SEBI did Hitler's step. Now see the results are there in fornt of you. Running water can manage own ways. IFA will shift to other. But who were losing AMC. See SEBI director can 5 figure amount received but AMC lost chunks of AUM.
Kumar Ravi · 4 months ago
SEBI should also allow the AMC to have different schemes for Regular as well as Direct, not the same schemes. An IFA do his/her study, analysis and deep research and so many parameters comparison across funds and then recommends a particular scheme to his/her investor so that his/her investor able to generate good amount profit and that investor again invest with that IFA. Here in current scenario all hard work of IFA is simply grabbed by Direct investors without any work, research, time and expenses. When Regular and direct plans will be different then the industry will able to realise the importance to IFAs.
Kumar Ravi · 4 months ago
IRDA and other regulators are not doing anything to stop mis-selling in Insurance and other financial products, where the loss to the investors are huge in terms of financial gain but SEBI is showing his proactiveness in a wrong direction where ultimate looser will be indian investors and India MF Industry. On one side US MF market is alone 39% of world MF market and we are even less than 1% will further deteriorate. The coming days are not going to be healthy for any one. It all seems a planned distortion of MF market.
Mayank · 4 months ago
Sebi sare mf advisor ko bevkoof samajhti h samajhti Kya h hum sab bevkoof Hain. Koi virodh to karta nhi h kisi baat ka direct aaya koi virodh nhi. Fir statement me brokerage likh k bhejne lage fir direct aur regular ka difference bheja gya fir trail Kam ki gai fir upfront khatam Kia gya... Abhi business kewal 1% pe hai to sebi itni nautanki kar rhi h jis din 10% hoga usdin sare ifa ko dudh me padi makkhi ki tarah fek degi abhi ifa mahanat kar kar k har gao gali me client banayenge.unki sip karayenge 3 saal 5 saal sip Chala lene dijiye client ko fir sebi ek sercular layegi ki client ke pas ek statement bheja Jaye jisme bataya Jaye ki usne regular me sip chalai to ye return aaya agar wo direct me chalata to ye return aata uske sath ek form laga hua hoga aur ifa ko apki sip see ab tak kitni brokerage mili h wo likha hoga aur ek form hoga jisme regular ko direct me convert karne ka form hoga aur client ko use bus sign karke sath me lage hue lifafe me dal k post kar Dena hoga uske sare plan direct ho jayenge.aur ye din jyada dur nhi h apki humari sari mehnat pe balti bhar k nhi samudra bhar k pani feka jayega aur aap last me aadhe clients see mili aadhi brokerage bhi wapas karne k lie taiyaar rahiye.aaj see 5 saal bad Marne see accha hai aaj hi is business ko maar dijiye.fir sebi se kahiye ki wo khud ja k dhunde client aur banaye client. Mehnat hum kare aur sebi kewal direct direct chillaye. Ab sebi see kahiye ki wo direct hi sab kaam karwaye. Kisi ifa ko ab kaam karne ki jarurat nhi hai. Kyuki Jo Maine ashanka jatai hai wo pakka kuch saal bad kyu apna future kharab karna isse to koi aur business kar lijiye sukoon me rahenge aur apni aane wali peedhi k lie bhi kuch de k jayenge ab ifa ka koi bhavishya surakshit nhi hai.
chintaman shintre · 4 months ago
Whether this step is taken to support Government's intention to create more job opportunities ??. If this is the right way ,what way we people will be given alternate jobs ???
Amffa · 4 months ago
90% of mf is sold by distributors and survival of distributors is in difficult phase. Distributors are under paid. Total sale is affected due to the non response of mfd.
MURARI · 4 months ago
When I read the sugar coated words of AMCs it is almost saddening. If they are confident that throwing the distributors out of business is good for business, so be it. Distributors have a family to take care of, children to be educated. OK , let the AMCs directly service the millions of investors. Now I hear that trail is going to be on a tapering basis as per Sen committee report. Very good.
Dhananjay Kumar Singh · 4 months ago
Jo hua acha hua, Jo hoga wo bhi acha hi hoga , are bechna hi to hai phir socna Kya ,govt 1 rupya kill rice degi , hath me jhal pakda degi bajaiye baith ke .
Gaurav K Singhal · 4 months ago
If the upfront ban is affecting adversely, why the Direct Investment figure is less by 37% over average of last 7 months.

It clearly means that the downfall in figure is not just due to such changes.

A change is usually painful in the beginning and is applied in all fields.
a.k. madhwani · 4 months ago
Even in all trail model commissions are too low to sustain the business model. Cuts in commissions are applied retrospectively. There is funny argument of reducing commission because of economies of scale. If this criteria is applied to every industry imagine at what price you should get Coke - almost free. Economies of scale are growing every year for Coke and other industries. With this criteria every consumer product you should get at a fraction of price companies are charging you today, say for Maruti, Hindustan Lever, or any consumer product. Look at the commission offered by life insurance companies. Mutual Funds are in direct competition with certain products of life insurance companies. Why two yardsticks for selling financial products. You cannot challenge commission of life insurance companies because LIC is a big boss. LIC successfully challenged SEBI, when it refused to place ULIP products under the jurisdiction of SEBI.
Ajay Kumar Dhuriya · 4 months ago
Survival is difficult for those ifa who have office and empolyes or if they are new in this MF advisory businesses. Business volume is not so much in village area people are not well aware for mutual Funds IFAs are doing so much hard work to educate financial literacy to the new client & transaction cost or convince cost is high in back city's this brokerage is not enough for survival. Now the industry was in growing phase but SEBI decision will impact in this industry some ifa will be out of this business. Some AMC Pramoting Direct Plan so aggressively so that hardly accumulated AUM of IFAs is shifting into direct plans now all the hard work has been reuined & that client was previously served by MF distribution & ifa. It looks like SEBI will further Reduce the brokerage like other countries where the Mf operation expences is less than India if that happens then there will be nothing left in our distributors hand. I have seen so many mf distributor & advisor, CFP who are doing their business very honestly and they are following the ethics, providing good advisory services, software to Clint but now it seems that unjust happened with IFAs. SEBI should understand the current ground level truth & he should do something for ifas and for this industry.
Paul · 4 months ago
This industry is worse to stick to. Regulators are only focused on trivial matter. The day when SEBI implemented direct it turned out to be a chaos for a naive market like India. Only MF advisors spread financial awareness by way of safe banking, quantum of insurance required, helping people to create wealth by participating in equity market. Most of the banks sold equity SIP as alternative to RD and never spoke about loss due to volatile market to their customers. They don't focus on age based equity allocation they just sell product with high commission. SEBI has never watchdogged on Retired people participating in equity derivatives & running out their retirement fund totally upon that. SEBI has never banned people based on age to participate in derivatives as well as on net-worth. Many innocent people lose their entire principal in just trading with derivatives. Many Distributor are so poor that they cannot even lead a dignified lifestyle with so much of education in this platform & their families have to compromise on little requirements. Limiting Direct to Only HNI & FII is the only solution for organic growth of Industry otherwise access to Direct to Retail may shatter & shrink the Industry to parched Desert.
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