Transaction charges window to open soon

Distributors can change their status on transaction charges from September 1^st till September 25.

Distributors can change their status on transaction charges (TC) from September 1^st till September 25^th.  The first window was open from March 1^st till March 25^th.

After the abolition of entry load, many distributors complained that collecting a separate cheque from clients was not practical. To address this issue, SEBI allowed distributors to charge Rs 150 for getting a new investor and Rs 100 from existing investors if they mobilize Rs 10,000 or above. The transaction charge (TC) is deducted from the subscription amount and paid to distributors.

However, the transaction charge, which has an in-built mechanism for deduction has not found favour with many advisors and investors.

A major inconvenience with TC is that distributors don’t have the flexibility to change status at a client level. If distributors opt in, the TC is deducted from the subscription amount from all clients. Thus, distributors can’t charge one client and not charge another client.

Earlier, distributors had the option to opt in or opt out on all categories of products only which was creating problems. Subsequently, in September 2012, distributors were allowed to opt in or opt out based on the scheme categories. Distributors can choose to levy TC from 11 scheme categories. (Liquid, gilt, debt, IDFs, ELSS, other equity schemes, balanced schemes, Gold ETFs, Other ETFs, fund of funds investing overseas and fund of funds – domestic.) The option exercised for a particular category of scheme is applicable across all fund houses. AMFI shares the status of distributors regarding TC with all fund houses. Distributors have to submit an option letter to CAMS unit of AMFI.

Distributors are required to inform all their clients about transaction charges. Transaction charge is not paid if schemes are sold through the stock exchange route.

Around 6000 distributors had opted in when the rule was introduced in 2011. According to CAMS, 8,648 ARN holders have opted in for transaction charges.

Distributors say that the introduction of direct plans has also led many distributors to opt out of TC in order to retain their clients. Most national distributors and platforms have opted out of transaction charges.

Do you think transaction charge has helped distributors? Let us know.