Some IFAs expect AMCs to share the service tax burden.
Distributors are anxiously looking forward to the new commission structure which is expected to be announced by April 10.
Some distributors are expecting that fund houses will increase trail commission by 15 basis points to help them tide over the service tax burden.
Recently, rumor has floated that a private sector fund house is offering an additional commission of 15 basis points to compensate for service tax. It was claimed that the fund house has offered a trail commission of 1.15% to distributors. As a result, a few distributors have reportedly asked other fund houses to raise the trail commission structure by 15 basis points. A senior official from this fund house clarified that a few distributors have misinterpreted their new commission structure. “The commission structure varies depending on the type of distributor. We are not offering additional 15 bps to compensate for service tax. IFAs who gave us good business last year will certainly get more incentives than those who have given less business.”
Another senior official from a foreign fund house said that his fund house can pay over 1.15% as trail commission to distributors; however, they have no intention to compensate for service tax burden. “It would be ethically wrong to pay additional commission to distributors to help them tide over service tax burden. Also, those fund houses who are offering such structures need to evaluate how long they will support their distributors from such issues. It would not be beneficial for investors, AMCs and distributors in the long term.”
Dinesh Khara, Managing Director & Chief Executive Officer, SBI Mutual Fund believes that AMCs cannot bear the service tax burden by compromising on management fee. “Fund houses cannot increase TER. The service tax must be charged within the prescribed limit. Also, it would not be viable to hike commissions by taking a hit on management fee.”
“With the cap on upfront commission, fund houses are expected to increase the trail commission. There is a possibility that trail commission would go up. However, AMCs cannot hike trail commission to compensate for service tax,” said G PradeepKumar, Chief Executive Officer, Union KBC Mutual Fund.
However, a few fund houses have a different view. Aashish Somaiyaa, Managing Director & Chief Executive Officer, Motilal Oswal MF said that AMCs should bear some service tax to help distributors. “We are awaiting more clarity on service tax issue. I believe AMCs should rethink their commission structure and factor in service tax. They should also bear some burden of service tax on distributors.”
Let us know your views.
