AMFI is said to have proposed two approaches to offset service tax burden on distributors – increasing total expense ratio or TER where there is a room and paying out additional commission in the form of promotional incentive.
In the TER approach, fund houses may consider increasing TER of scheme to a certain extent depending on the availability of room. Simply put, if a scheme is entitled to charge a TER of say 2.50% but for some reason is charging only 2.35% as TER, leaving a room to increase its TER by an additional 15 bps; in such cases, fund houses may adjust this available gap with the TER to offset service tax burden on distributors.
Under the second approach, AMFI is said to have proposed fund houses to payout an additional 10-15 basis points in the form of promotional incentive. As a result, the overall trail commission will increase to the given extent. Assuming that a scheme is offering a trail commission of 90 bps, this proposal will enable fund houses to pay trail commission of 1.026% (90 bps as trail plus 12.6 bps as promotional incentive).
Two months back, AMFI had appointed a committee to deal with the 14% service tax burden imposed by the Budget 2015 on distributors.
These recommendations were made recently by this committee. Both these approaches will be discussed in the board meeting which is scheduled to be held on Friday.
This development has been confirmed by four chief executive officers. However, AMFI CEO, HN Sinor has denied any such development.
