Reliance has paid the highest commission of Rs. 330 crore to 433 distributors across India followed by HDFC which paid Rs. 288 crore in FY2010-11
Mumbai: An analysis of top 12 AMCs on the basis of AUM shows that they have collectively paid Rs. 1,546 in commission to around 549 distributors, the highest being paid by Reliance AMC (Rs. 330 crore) in the last fiscal followed by HDFC (Rs. 288 crore) and Birla Sun Life (Rs. 166 crore). Among the big fund houses, UTI seems to have paid out a more modest Rs. 63 crore.
|
AMC |
Commission paid during FY10-11 |
|
Reliance |
330 |
|
HDFC |
288 |
|
Birla Sun Life |
166 |
|
ICICI Prudential |
146 |
|
Franklin Templeton |
129 |
|
DSP Black Rock |
103 |
|
SBI |
96 |
|
Sundaram |
67 |
|
Kotak |
59 |
|
UTI |
63 |
|
IDFC |
52 |
|
Tata |
47 |
|
Total |
1,546 |
|
Source: AMC websites | |
Fund houses pay an upfront
For an AMC to make profit, the assets have to at least stay invested for 2 years. “If customer redeems before one year we recover the costs from exit loads. If investors redeem after one year and one day, we could be at loss also,” says a sales head of domestic fund house.
In debt funds on the other hand, the payouts to distributors are less. Under debt funds, upfront is usually almost equivalent or less than the exit load charged. If investor redeems AMCs earn from exit loads. Some fund houses pay trail after the exit load period is over so that they retain assets.
Distributors’ earnings are directly proportional to their assets under advisory and the prevailing market value of those assets. A fall in market means a dent in their earnings and vice versa.
Under liquid funds institutional plans, the commissions are around 5 to 10 (annualized) basis points and 15-20 (annualized) basis points under retail plans. In liquid plus schemes, 15 to 20 (annualized) basis points are offered.
Traditionally fund houses have been paying trail commission on a quarterly basis. Now some AMCs are shifting towards monthly payout model to improve the cash flows of distributors. After the ban on entry loads, most AMCs are offering competitive rates, often from their own pockets. Apart from commissions AMCs run “schemes” which offer foreign junkets on achieving certain targets.
These commissions do not include other costs incurred by AMCs like investor meets, distributor trainings, road shows, advertisements put out in distributor’s promotional materials and foreign junkets.
Expense ratio and exit loads are the two important deciding factors in designing a brokerage structure. Last year a few AMCs were doling out commissions as high as 5% under ELSS as the money is locked in for three years.
