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MF News How will you be impacted by TER rationalisation?

How will you be impacted by TER rationalisation?

We spoke to a few industry experts to understand the impact of TER rationalisation.
Nishant Patnaik Jan 1, 2019

On December 13, SEBI announced TER slabs based on AUM of the scheme from April 1, 2019. The market regulator has capped TER at 2.25% in equity funds and 2% in other than equity funds.

We spoke to a few industry experts to understand the impact on TER rationalisation on the mutual funds industry.

Milind Barve, MD and CEO, HDFC Mutual Fund said that the move would impact earnings of both fund houses and distributors.

Dhruv Mehta, Chairman, Foundation of Independence Financial Advisor (FIFA) feels that distributors with small AUM would find it difficult to survive. “Imagine a situation when your boss told you that he will deduct your salary by 25% despite your hard work. You would look out for a new job, right. Similarly, distributors with small AUM may not find this profession lucrative. Large distributors will obviously find other ways and look at shifting to other products.”

Mehta also feels that rationalization in TER would affect B30 penetration. “Most investors in B30 require handholding by distributors. These investors will stay away from mutual funds if they do not find anyone who can help them with financial advice.”

Swarup Mohanty, CEO, Mirae Asset said that rationalization in TER would lead to a shift towards fee based advisory business. “Large distributors have started moving on from commission led distribution model to fee based model. In fact, most of them have set up fee based advisory services.”

Talking about rationalisation of costs, Mohanty believes that every industry has to reduce costs to survive. Citing an example of smart phones and cars, he said, “Six years ago, I bought a mid-variant of a car worth Rs.9.60 lakh. Today, I have bought a new car at Rs.9.40 lakh with more powerful features and automatic transmission. Normally, one would assume that sheer inflation would lead to a rise in the cost of the car. However, thanks to rising volumes and increasing competition in the automobile industry, we are getting such a car at reduced prices. Another example is iPad. Its cost has reduced from Rs.35,000 to Rs.29,000 now. However, both automobile industry and dealers have witnessed growth in their business over the years due to increase in volume. Though AMCs and mutual fund distributors would take time to readjust to the new norms, I strongly believe that we will all prosper.”

NS Venkatesh, AMFI Chairman feels that the move will help the industry attract more investors. “Rationalization of TER is a positive move for the industry. It is good for the investors and the mutual funds industry will now become more attractive for investors. I am confident that the industry will add millions of investors going forward,” he said.

Here is the impact of TER rationalisation on stakeholders of the mutual funds industry.

Investors: Positive. Cost of owning a fund will go down for them and returns will improve.

Distributors: Most research houses such as Citi India and CLSA said that that the impact would be more acute on distributors. In fact, they have estimated that the earnings of distributors to reduce by 15 to 20 bps. However, the difference between regular and direct plan will reduce substantially.

AMCs: Another likely impact of the circular is shift of incremental inflows to small size funds. A senior official of a large fund house feels that banks and IFAs will shift to small size funds as such funds can offer more remunerative commission.

On the other hand, large sized funds cannot charge much. There will be impact on earnings. Just like revenue per customer has come down for telecom operators, AMCs will have to face a similar situation in the mutual fund industry.

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24 Comments
Mayank Saxena · 2 months ago
Distributor bade ho ya chote is industry me ab Hume apna future secure nhi lag rha h sare distributor ko apne naye kisi business pe dhyan Dena padega aur ye industry k lie bahut ghatak hoga.amfi aur sebi mil k jab chahe humari income khatam kar saktee hain.aur compare kar rhe h car se car ka ek dealer jis city me hota h waha company dusra dealer nhi banati hai aur mf ko chod k kisi industry me direct ki nautanki nahi hai.ab sebi wale aur amfi wale distributor ko hata k khud gao gao ja k mf samjhana chahiye humari koi jarurat nhi h inhe ab.
ARN · 2 months ago
Mohanti.. ke man me laddu phut raha hai....distributor paresan hain... Inko bolta hun kal ek 1000 ki SIP karne wale ko jake bole ab TER tumhare fund par 10 paise kam lageneg... Pahle 2% tha ab 1.90% padega aur us se SIP leke aa jayen.. Kya bewkoofi hai... Ek bhi SIP lake retail se lake dikha de TER ghatne ke karan... Aise log Industry ko chala rahe hain... SEBI ke chamche
Jiwan · 2 months ago
You are right. Mirae asset walo ka sirf ek fund hi perform kar raha. Agar Vo vi na chala to inko kisi ne na puchhna. Ghatia AMC and ghatia SOCH.
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Wealth Zone Group · 2 months ago
AMFIs vision is totally wrong so far as Industry Growth is concerned. You did mistake in 2009 on Upfront Charges by seeing other so called Super Developed Markets and it lead to destruction of Mutual Funds market. They again had to introduce B15 incentives to clear their sins. Now they have decided to kill industry and especially distributors. it's Shameful act by 2-3 people sitting in 7star offices to act against small distributors. No Investor is telling Mutual Funds is costly. They are pupils in the hands of Large Fund Houses and Large distributors to kill Small IFAs so that they won't be impacted by young new entrepreneurs into this market.
Rajesh · 2 months ago
It's not only big fund houses only. Small funf houses like mirae who is well endorsing SEBI TIRANT views destructive order on distributors. Shame on people like mohanty
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Sumit Arya · 2 months ago
Vinaash kaale vipareet buddhi
Kaushal · 2 months ago
Perfect.
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DINESH KUMAR MAURYA · 2 months ago
SEBI our amfi ke beach kaun se khichari Pak rahi Hai our bade distributor maun kyo Hai? Sab jaj jahir Hai..Jab sarvival muskil ho Jaye to bhagane se kam nahi chalega . avoid business with such AMC which CEO are mindset anti to us just like HDFC .Mere hi business par 26cr pa Raha Hai..hame bhi inka nuksan katana Hai...hame Delhi ki political galiyaro me BHI Jana Chahiye.. we should talk with rulling and opposition leader for support in general election...Dr Ambedkar says politics is the key for all problems..
Pradeep Dubey · 2 months ago
Sebi & Amfi both are taking money from big distributor like Banks, paytm & others. They are doing like they are king of India. Because of this kind of organisation modi are suffering. May be i am wrong. Sebi and Amfi employee should work without pay. Like social worker. Sebi and Amfi just F..k... Indian distributors. GST already impacted in commission. I dont know why Arun Jaitley not teaching the rule of GST to Sebi & Amfi. Gst should charge on TER to Investors only. If they do this all think will resolve.
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Alerasool · 2 months ago
Ager upfrant or trai per galat soch hai to jo katwti ka salh dete hai market me jaker dekhee mhnat kya hai
RAVI VISHWAKARMA · 2 months ago
Ye sebi, amfi aur AMC ke top management AC room me baith ke badi badi baaten karte hain, inhe lagane laga hai ki distributor ho ya na ho, unke business pe koi fark nahi padega, investor khud daudkar inke paas aayega.
Ham logon ko apani takat dikhana jaruri hai, iske liye ham sab ko ek saath ek hafte ke liye saare transaction rok dene chahiye, tab inhe samajh aayega ki distributor ke bina in companies ki kya haisiyat hai.
Nahi to roj roj income kam krne ka natak band karke ,bol de ki aaj se ham distributor ko kuch nahi denge to har aadami soch to le usse kya karna hai, hamlogon ki haalat hai ki na ye business kar hi pa rahen hain na chod pa rahen hain.
GAURAV · 2 months ago
7 Days all transaction stop , kewal redemption and sip stop continue rahne chahiye, SEBI ko ye bhi dekhna chahiye ki IFA/ Distributor ko kisi AMC me kitne employee ki jaroorat hai..... impact of TER specially B15 location par to Branch Manager ki jaroorat hi nahi hai
Mayank · 2 months ago
Sir Kam rokne se jyada inko direct ki Kya asliyat h ye batana jaruri h sare ifa apna investment direct karte h unhe chahiye ki apna Sara Paisa redeem kar le jisse sebi ko pata chale ki direct investor ko sebi nhi rok sakti chahe kitna bhi direct ka advertising kar le.
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sundar · 2 months ago
firstly pls tell me who is small distributor and who is large distributor,this will impact all
Prashant · 2 months ago
I would disagree with Mr.mehta when he says B30 location people need hand holding. Everyone in this world needs hand holding even in countries like USA people prefer distributors only. Now let us come to Mr.mohanty. When he says that almost all large distributors are charging fees means he hardly knows any large distributors. He says that industry needs to reduce cost to survive which is absolutely foolish argument because without reducing any TER industry reached to 23 lakh crores and still progressing not dying. All this because of only and only on distributor's efforts which was used by AMCs and now they want to throw us out. AMCs will prosper on this move and in fact that is the sole reason why this move has happened.
Now let's come to Mr.Venkatesh He says that rationalisation will bring in more investors so he means that all the other investors till date were fools? How and for who will this industry become attractive is the question he needs to ask himself. This move has actually arrested the progress of this industry. This is called Andher nagri Gandu raja.
Murli · 2 months ago
I request all IFA fraternity pls stop selling Mutual Funds for the moment. Explore other means of income. We do have the power to decimate these bloody crooks who acts like TIRANT in the industry. It's Shameful only on there behalf. Emerging IFAs are struggling to feed their families. I have seen people crying worrying but not of any use in front of these people. Loss of jobs is not important in Mutual Funds industry as number of people in Mutual Funds houses are very few. Show them what's the power of people who can garner 25 lakh cr business can bring them to there levels too.
MURARI · 2 months ago
Mr. Mohanty has spoken like an uninformed person. I wish he had consulted his colleagues before expressing his views.
Mr. Mohanty , do you think that every other investor into the mutual funds is looking at a portfolio management with a big chunk of money , so that he would pay the charges to the advisor. Have you thought of the run of the mill investors with 1 kakh or 50000/- . Do you think such a customer would compensate for the services of the IFA. Do you know that most of the Registered Advisors are charging money as well as earning commission by putting deal through their own people. Even Banks are doing the same.

Mr Mohanty , reduction of cost for cars and i phones are borne by the manufacturer, not by the dealers. Why don't you as CEO of Mirae reduce your expenses and Fund Management charges instead of passing on the reduction to the distributors.

Sorry state of affairs that even responsible people talk in this manner.
MAdhura Kulkarni · 2 months ago
I am working in capital market from last 20 years...I have observed Govt.has an eye only in the finance market reduction of income.In all the other businesses so much corruption goes on...But here though everything is white... this Sebi..amfi...always try to reduce the income of IFA..I think now onwards no one should give exams conducted by NISM.It will be useless.Exam fees..renewal charges who will pay so much.
Krishan · 2 months ago
Agar TER kam hone se growth hoti to Liquid Fund category ka AUM 100 lacs Crore hota...Sare Savings n Current Account ke paise yahin per hote..Lekin aisa hai Nahi. Mr. Mohanti jaise CEO ko ye lag raha hai unko TER reduction ka advantage mileage kyunki unke funds ke TER par bahut impact nahi aayega lekin inki galatfahmi tab door hogi jab 10-15 crore se kam AUM wale distributor market se gayab ho jayenge...thode din wait kar lo...Kai banks ne MF advice karna band kar diya hai...1000-2000 ki SIP Karen wale log market se gayab ho jayenge aur Mutual Fund sirf online bikega ya HNIs ke life advisor kaam karenge.. SEBI, AMFI aur Mutual Fund ka Top Managment...mandir me ghanti bajayege aur khush honge apne achievement pe. In bewkoofon ke against distributors stand nahi karte kyunki inke pas power hai, position hai aur paisa hai...hamare pas sirf ek rasta hai wo hai Political leadership tak apni baat pahuchane ka..aur uske liye...Delhi,Varanasi aur State Capital ke distributor association ko Kadam uthane chahiye..muje lagta hai ki Varanasi ke distributor aur unke association ko PM tak apni baat aasani se pahuncha sakte hain kyunki wo wahan ke MP bhi hain..wo jarur samjhnege ki 10-15 paise ke cut se investor ka bhala to kuch nahi hone wala lekin Kai Logon ke Rojgar bhi khatm ho jayenge aur Naye rojgar jo banane the wo bhi nahi paida honge..pls sab log kosis Karen
IFA-do-or-Die · 2 months ago
We want more IFAs to raise our voices collectively. Please connect to us if you wish to join us. Write to- ifadoordie@gmail.com
(IFA-Do-or-Die)
Reply
manoj Singhal · 2 months ago
First of all penentration of industry is very low comparative to banking industry. Ahuge chunk of money goes to bank/LIC/National Savings because there is no surely of your money to be refunded in full in case of emegency. But investor education by distributors changed the direction of inflow after crash of 2008/09.All distributors are paid very low after 20/25 years of hard work.All fund managers company officials paid heavyly but salesperson will be paid lowest. Gali investor ki wo khae convince wo kare service all type wo de and AMC wale phone par bolte he contact to branch for new investment ye he biggest AMC walo ke hall............
murari · 2 months ago
It is a great move to bring the commission levels of IFAs close to ground Zero . This will impress all investors and they will rush to invest in mutual funds because their cost is reduced by 0.5 % . There will be a huge rush for investments .. I am sure about it. Mr Venkatesh , AMFI chairman ,feels the same way. Mr. Venkatesh, it will be better if Fund Management Charges are also reduced greatly so that more and more investors would be flooding the fund houses with investments. I think social trusts should be established to advise investors as well as putting the investments through. This will be even better. Countries like U.S and U.K should learn a lesson from India as to how the mutual funds are administered.
tdevendra · 2 months ago
fund houses, amcs, distributors sebi amfi have failed to address the brokerage. the upfront portion is cut off , but amfi should make fund house compensate the brokerage of upfront to trail portion so that the ifa loss is minimised. there is lot of confusion in the minds of ifas. there is no holistic way of designing the pay structure. while with inflation running at 6%, education inflation at 35%, entertainment inflation running at %, consumption inflation is running between 25-50%, the ifa at basic should be in a position to run the house hold at payment of 25000+. it is brutal on the part of the above organisations to nod head to headless arguement of Sebi, amcs, amfi. they have no practicality of the problems associate of doing this useless and thankless business under inhuman conscience of human values of the above organisations represented
Atul N · 2 months ago
I wish to draw your attention to the fact that NO Government can fix the selling price of a product or the commission paid to respective distributors. If a client thinks that the product is costly, he may choose not to buy it.
i congratulate Mr. Mohanty for speaking out their mind. You can not compare Cars and mobile phones which are tangible but financial products need to be explained to client.
I also wonder what AMFI achieves by making us go through exams every three years to keep ourselves updated but what is it for client for whom you have opened doors by way of going DIRECT,
is AMFI taking responsibility for any thing going wrong for Client when he goes direct?
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