SUBSCRIBE NEWSLETTER
  • Change Language
  • English
  • Hindi
  • Marathi
  • Gujarati
  • Punjabi
  • Tamil
  • Telugu
  • Bengali
  • MF News Fund house asks distributors to go for ‘AUM transfer plan’ to cushion TER rationalization impact

    Fund house asks distributors to go for ‘AUM transfer plan’ to cushion TER rationalization impact

    A mid-sized fund house advises distributors to transfer a portion of AUA to small sized funds to keep their earnings intact.
    Nishant Patnaik Jan 3, 2019

    A mid-sized fund house has advised its distributors to go for AUM Transfer Plan (ATP). ATP is transferring of assets to other funds to keep earnings intact post rationalisation of TER. 

    A note sent by this mid-sized fund house to select distributors states that the overall expense ratio of funds having AUM of Rs.10,000 crore or more will be in the range of 1.43% to 1.70% with effect from April 2019. This will result in reduction in brokerage structure of distributors. In fact, there could be a reduction of at least 0.25-0.30% on brokerage, said the fund house.

    Currently, large schemes offer trail commission in the range of 0.75%-1.35% depending on the volume of business. With rationalization in TER, the trail commission offered on such schemes is likely to be in the range of 0.50%-1%.

    The fund house has suggested that in order to keep their earnings intact, distributors should look at transferring a portion of their assets in performing schemes having AUM of less than Rs.500 crore as such a scheme can continue to offer trail commission 1.30% to 1.50%.

    Here is an extract from the fund house’s communication outlining three scenarios:

    The above illustration indicates that distributors having AUM of Rs.200 crore may have to face shortfall of Rs.60 lakh a year if they continue with the large sized schemes. The fund house said that if a distributor transfers his entire AUM to smaller schemes, his annual revenue would grow to Rs.3 crore. Even if the distributor switches 25% of the AUM i.e. Rs.50 crore, his annual income will be Rs.75 lakh more than Rs.1.80 crore, said the fund house.

    A senior official from this mid-sized fund house told Cafemutual on condition of anonymity that this will help distributors cushion the impact of rationalization of TER on their earnings. “In my view, distributors should consider transferring a portion of their AUA to small sized performing funds to keep their earnings intact. In fact, SEBI has also expressed its concern over increasing concentration risk in the mutual fund industry. The fact is that the top seven AMCs currently manage 70% of industry AUM. These AMCs account for 60% of entire industry’s revenue. There needs to be healthy competition for the widespread growth of the industry,” he said.

    Have a query or a doubt?
    Need a clarification or more information on an issue?
    Cafemutual welcomes all mutual fund and insurance related questions. So write in to us at newsdesk@cafemutual.com

    Click to clap
    Disclaimer: Cafemutual is an industry platform of mutual fund professionals. Our visitors are requested to maintain the decorum of the platform when expressing their thoughts and commenting on articles. Viewers are advised to refrain from making defamatory allegations against individuals. Those making abusive language or defamatory allegations will be blocked from accessing the web site.
    14 Comments
    Dhanesh Bhagwat · 5 years ago `
    Can anybody tell me, how many IFAs have more than 200 crores AUM. If they would have shown this with 1000 crores it would have been much lucrative ;)
    Rakesh popat · 5 years ago `
    This rule of sebi will again lead mis selling, infact a distributor would be forced to shift their AUM from performers to under performers.
    Prashant · 5 years ago `
    First of all these bogus regulations are not because of concentration risk at all. Secondly big distributors should read this and open their eyes and unite and fight. I feel they are vision less and they just don't want to come in AMCs eyes because are afraid of them. Second point is for you Mr.Nishant that you have written very smartly "In fact, there could be a reduction of at least 0.25-0.30% on brokerage, said the fund house." Which shows that you are buyest and not being honest in saying it will reduce by 0.25 to 0.30 bps and not percentage. In fact the brokerage will go down by 40 to 50% further ahead.
    Sam Koshy · 5 years ago
    Exactly nailed on Top. Mr Nishant has to answer .
    gopal · 5 years ago
    paid article
    Reply
    Alagappan · 5 years ago `
    They hv shown commissions earned by a distributor Incase we hv brought funds today but the practical thing is the distributor would hv accumulated the aum over a period of 10 years atleast then his average trial is not as shown abv it will be around 60 bps to 70 bps maximum but when they reduce the ter these amc reduces flat 30 bps which means we will get only 30 to 40 bps they don’t reduce as per the date of investment if we would hv processed the investment say 2005 we would hv a trial of only 40 bps, last year when they reduced the ter it has already come down to 20 bps now when ter is again reduced they will charge the distributor 20 bps monthly for having investment
    Now pls check ur brokerage statement they hold commissions for not keeping update kyc if client redeem the money still they don’t pay us stating kyc not done why will customer give kyc for zero folio
    Ajay t · 5 years ago `
    IFA will sell what we dictate how at what rate that we will decide and where his aum will move that too Sebi will rule. Ifa fraternity is a puppet innocent and handicapped. Soon all MF will be on 0.002-.0005 Paise and 90% client shud be thru direct. No comment....... Happy sell
    Rajiv jain · 5 years ago
    SEBI always believe in transparency with clients. We don’t understand what will be the explanation to the client for this move.
    Secondly are we really providing need based solution , if yes then in this move whose NEED will be met client or consultant.
    Our Believe : Do your work with full interegity & client centric approach, your earnings will always grow.
    Reply
    Saurabh · 5 years ago `
    It's no means of transferring AUM from large size funds to mid-size it is better for distributor to shift to other work by which they get the long term return of their hard work!
    Vishal Rastogi · 5 years ago `
    PLz. do not teach IFA's unethical practice, rather i would request AMC's to go SEBI & request them for option of appropriate pay-out for quality advice & Betterment on industry......!
    Alagappan · 5 years ago `
    They hv shown commissions earned by a distributor Incase we hv brought funds today but the practical thing is the distributor would hv accumulated the aum over a period of 10 years atleast then his average trial is not as shown abv it will be around 60 bps to 70 bps maximum but when they reduce the ter these amc reduces flat 30 bps which means we will get only 30 to 40 bps they don’t reduce as per the date of investment if we would hv processed the investment say 2005 we would hv a trial of only 40 bps, last year when they reduced the ter it has already come down to 20 bps now when ter is again reduced they will charge the distributor 20 bps monthly for having investment
    Now pls check ur brokerage statement they hold commissions for not keeping update kyc if client redeem the money still they don’t pay us stating kyc not done why will customer give kyc for zero folio
    sandeep · 5 years ago
    As a distributor..every year we used to give new year diary to our client to retain our clientele..but this year it becomes very difficult to give anything...

    Mutual fund contract between we and client is long term contract..In every major corrections, we have to handle customers panicness.....If we don't get proper Brokerage...we will not be able to give proper guidance ..in this way client reedeem all investment...and spread rumor that mf bekar hai. In this way Mutual funds industry hamper in big way.
    In last 10 year...Mutual funds industry has grown up only due to distributor. They create awareness in market...personally.

    Sir...I think...all distributor should get 2% trail commission in 1 st year and 1.5% in following years..no upfront...no any commission...ONLY TRAIL COMMISSION 2% IN FIRST YEAR AND 1.5% IN FOLLOWING YEARS...
    Reply
    VMV CAPITAL · 5 years ago `
    As you all know that Govt of India allows commission of Rs.6.00 per litre (8.50%) Petrol/Diesel to petrol pump dealer. But hesitate to pay 0.50% Brokerage to Advisors. It is really pathetic.....
    Sumit · 5 years ago `
    It will surely have negative impact on mutual fund industry , as most of the aum will start shifting to small fund houses
    Login or Sign up to post comments.
    More than 2,07,000 of your industry peers are staying on top of their game by receiving daily tips, ideas and articles on growth strategies. Join them and stay updated by subscribing to Cafemutual newsletters.

    Fill in the below details or write to newsdesk@cafemutual.com and subscribe to Cafemutual Newsletter now.