MF News Most large schemes have partially absorbed the reduction in TER cut

Most large schemes have partially absorbed the reduction in TER cut

India’s top 20 funds have revised trial commission of distributors.

Nishant Patnaik Apr 12, 2019

An analysis of the new TER structure of top 20 schemes shows that most of them have partially absorbed the impact of TER reduction. Post April 1, 2019, fund houses have incorporated changes to their TER slabs to comply with the SEBI new norms.

Of the 20 largest schemes, while 16 schemes have reduced trail commission, four schemes have increased distributor commission. Also, 17 of them have partially absorbed the impact of TER reduction to an extent of at least 5 bps. These 20 schemes manage AUM of close to Rs.4 lakh crore of equity assets as on December 2018.

For the purpose of this analysis, we have included all pure equity, ELSS and hybrid category of funds based on their size. We have excluded arbitrage and ETF funds from the list. Further, we have considered the difference between TER of regular plan and direct plan of March 5, 2019 and April 5, 2019 to arrive at the trail commission.

India’s largest scheme HDFC Balanced Advantage Fund has reduced trail commission of distributors by 12 bps i.e. from 79 bps to 67 bps. However, since the net reduction between regular plan of before and after new TER regime is 33 bps, the fund house has passed on 12 bps to distributors and absorbed 17 bps on its own.

Similarly, ICICI Prudential Balanced Advantage Fund has reduced trail commission to 51 bps from 75 bps, a reduction of 24 bps. Overall, the scheme has seen net reduction of 33 bps in its regular plan TER of which it has passed on 24 bps to distributors and absorbed 7 bps.

However, the third largest scheme in terms of assets, SBI Equity Hybrid Fund has increased the trail commission of distributors from 75 bps to 86 bps despite 13 bps cut in its regular plan TER. The fund house has actually increased the trail commission by 11 bps by absorbing 24 bps.

Please note that the figures may change slightly due to change in date of TER.

Here is the list of top 20 schemes

Fund	Category	Date	Regular TER	Direct TER	Commissions (Old/New)	Difference b/w direct and regular	Gross Reduction in TER of regular plan	Net Increase/(Decrease) in commission	Extent of absorption	% Increase/ (Decrease)
HDFC Balanced Advantage Fund	HY - DAA	05-03-2019	2.07	1.28	Old	0.79	0.29	-0.12	0.17	-15.19%
		05-04-2019	1.78	1.11	New	0.67
ICICI PRUDENTIAL BALANCE ADVANTAGE FUND	HY - DAA	05-03-2019	1.98	1.23	Old	0.75	0.33	-0.24	0.09	-32.00%
		05-04-2019	1.65	1.14	New	0.51
SBI EQUITY HYBRID FUND	HY - AH	05-03-2019	2.07	1.32	Old	0.75	0.13	0.11	0.24	14.67%
		05-04-2019	1.94	1.08	New	0.86
ICICI PRUDENTIAL EQUITY & DEBT FUND	HY - AH	05-03-2019	2.02	1.06	Old	0.96	0.37	-0.34	0.03	-35.42%
		05-04-2019	1.65	1.03	New	0.62
HDFC HYBRID EQUITY FUND	HY - AH	05-03-2019	2.03	1.28	Old	0.75	0.22	-0.06	0.16	-8.00%
		05-04-2019	1.81	1.12	New	0.69
KOTAK STANDARD MULTICAP FUND REGULAR PLAN	EQ - MLC	05-03-2019	2.06	0.97	Old	1.09	0.29	-0.05	0.24	-4.59%
		05-04-2019	1.77	0.73	New	1.04
ADITYA BIRLA SUN LIFE FRONTLINE EQUITY FUND	EQ - LC	05-03-2019	1.97	1.17	Old	0.8	-0.02	0.08	0.10	10.00%
		05-04-2019	1.99	1.11	New	0.88
HDFC MID CAP OPPORTUNITIES FUND	EQ - MC	05-03-2019	2.15	1.22	Old	0.93	0.27	-0.11	0.16	-11.83%
		05-04-2019	1.88	1.06	New	0.82
HDFC EQUITY FUND	EQ - MLC	05-03-2019	2.05	1.4	Old	0.65	0.26	-0.09	0.17	-13.85%
		05-04-2019	1.79	1.23	New	0.56
SBI BLUECHIP FUND	EQ - LC	05-03-2019	1.96	1.21	Old	0.75	0.02	0.1	0.12	13.33%
		05-04-2019	1.94	1.09	New	0.85
ICICI PRUDENTIAL BLUECHIP FUND	EQ - LC	05-03-2019	2.05	1.26	Old	0.79	0.33	-0.28	0.05	-35.44%
		05-04-2019	1.72	1.21	New	0.51
AXIS LONG TERM EQUITY FUND	EQ - ELSS	05-03-2019	1.88	0.95	Old	0.93	0.11	0.18	0.29	19.35%
		05-04-2019	1.77	0.66	New	1.11
ICICI PRUDENTIAL VALUE DISCOVERY FUND	EQ - VAL	05-03-2019	2.09	1.36	Old	0.73	0.33	-0.23	0.1	-31.51%
		05-04-2019	1.76	1.26	New	0.5
HDFC TOP 100 FUND	EQ - LC	05-03-2019	2.08	1.5	Old	0.58	0.23	-0.06	0.17	-10.34%
		05-04-2019	1.85	1.33	New	0.52
ADITYA BIRLA SUN LIFE EQUITY HYBRID '95 FUND	HY - AH	05-03-2019	1.97	1.05	Old	0.92	0.21	-0.19	0.02	-20.65%
		05-04-2019	1.76	1.03	New	0.73
MOTILAL OSWAL MULTICAP 35 FUND	EQ - MLC	05-03-2019	1.95	1.04	Old	0.91	0.09	-0.01	0.08	-1.10%
		05-04-2019	1.86	0.96	New	0.9
RELIANCE EQUITY HYBRID FUND	HY - AH	05-03-2019	2.02	1	Old	1.02	0.13	-0.12	0.01	-11.76%
		05-04-2019	1.89	0.99	New	0.9
RELIANCE LARGE CAP FUND	EQ - LC	05-03-2019	2.23	1.2	Old	1.03	0.17	-0.19	-0.02	-18.45%
		05-04-2019	2.06	1.22	New	0.84
FRANKLIN INDIA EQUITY FUND	EQ - MLC	05-03-2019	2.17	0.96	Old	1.21	0.39	-0.34	0.05	-28.10%
		05-04-2019	1.78	0.91	New	0.87
ICICI PRUDENTIAL MULTI ASSET FUND	HY - MAA	05-03-2019	2.21	1.17	Old	1.04	0.41	-0.4	0.01	-38.46%
		05-04-2019	1.8	1.16	New	0.64

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10 Comments

Rajesh · 5 years ago `

Operator should state way told IFA and AMC Community about thire life in this profession or make any set of rule for 5 years with no further change. They are keeping us on toe all the time on one subject or another.

MFg · 5 years ago `

Can anyone corroborate if SBI Hybrid Fund, Kotak Multi Cap Fund, etc are actually giving these rates. On ground level I have yet to meet another IFA accessing such rates. It seems the author has cherry picked the few ones getting such rates (if they are that is) and generalized that for all. These rates showcase the IFA's in a terrible light as if they all are actually getting these rates when in fact the reality is from this. In case these rates are seen as standard by SEBI then get ready for further rate cuts which would be on the real rates at the moment and not as shown here. This is not an attack cafemutual or the their team, merely an observation. Am sure they are only doing their jobs here

Ashutosh · 5 years ago `

The revenue of AMCs are from “Asset Management” fees.
After this exercise the fees for AMC’s will drop maximum by 5% from earlier levels as Asset management fees remain as it is.
But IFAs have been thrown with a reduction of average 25 bps cut from before.
Suppose an IFA used to make 1% earlier, now his revenue is 75 Bps. A reduction of 25% of his revenues.

If we talk about “scale” benefits of the industry to be passed to investors, the math should have been reversed where AMCs should have taken a hit of 25% & IFAs who by all measures have lower scale benefits than AMCs taking a hit of 5%.

However the leaders of AMCs have become greedy beyond imagination & have lost all morality.
SEBI has as always been a mute spectator to this. The quality of service & Sales has hence been deteriorating thanks to this exercise.
Further, the penetration of mutual funds shall also drop if IFAs/banks are asked to take 25% hit every 5 years.

5% hit for a scalable model by design & 25% hit for a less scalable model by design.. that’s how logic prevails these days.

Raju · 5 years ago `

Look at the hypocrisy of ICICI Pru MF, e.g.look at I Pru Multi-asset fund, they have absorbed 1 bps and cut commission by 40 bps, look at the other schemes of ICICI and HDFC- a total cut of 30 to 35% in distributors commission. So if tomorrow SEBI asks for info about cut in TERs, they will claim that they too had absorbed. Theses AMCs are following the regulation by letter and not by the spirit.2nd example of HDFC Bal adv fund- it's not 0.67% but currently offered 0.50 %.So IFAs need to decide with whom they should do business in the future. SEBI must intervene in this matter and should decide the uniform rate of brokerage as per aum slab irrespective of category of IFAs decided by AMCs, otherwise small IFAs will perish and new retail investors too.

AJAY VEDPATHAK · 5 years ago

VERY TRUE, WE SHOULD WRITE A LETTER TO SEBI CHAIRMAN IN THIS REGARD.

pankaj jp · 5 years ago `

It seems, neither SEBI nor AMCs want IFAs to make any earnings for their livelihood. Such regulations are not seen in Life Insurance business. Somewhere its clear that all this is happening for few large companies. I think its time to move out of this profession.

Prashant · 5 years ago `

This is a sham. The heading says most of the large schemes have partially absorbed the TER cut. They didn't do this for distributors bit because they know that if they don't do this distributors will stop recommending their schemes and they wanted to show that they are not antidistributor( which is a big sham because they are antidistributor). Distributors are not fools to not see this through. Jaago distributors jaago.

Prashant · 5 years ago

Also what they have absorbed is a megre amount and maximum they have cut is a huge amount. Without actually reducing their revenue or expense ratio they have reduced our brokerages big time so distributors will have to unite against this and fight or perish

Amit · 5 years ago `

In this way very soon trail will be banned and IFAs will be asked to work for gratis.

Preeti Patel · 5 years ago `

The author should clarify : For which catergory (AUM size) IFA they have taken brokerage structure... Because there is lot of varition in the data. SBI is also done reduction...

Even Mid category IFA's having AUM of 25 cr and above were getting 1% average trail which has been reduced to 60bps to 80bps...

And suprisingly they have reduced Brokerage in schemes where TER impact is not that big (for less than 10000 cr AUM schemes). Why dont author raise this issue???

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