Commissions of top 20 mutual fund distributors go up by 23 percent

The commission to the top 20 mutual fund distributors has gone up 23% from Rs 1,176 crore in FY11-12 to Rs 1,448 crore in FY12-13, shows AMFI data. The industry’s AUM has gone up by 20% from Rs 6.60 lakh crore in FY11-12 to Rs 7.94 lakh crore in FY12-13.

Industry officials attribute the spike in commission in FY12-13 to the upfront commissions paid out in bond funds. Average AUM of debt funds has gone up 31% from Rs 4.47 lakh crore in FY11-12 to Rs 5.86 lakh crore in FY12-13. Large distributors reportedly get up to 1.25 % upfront commission and 25 to 50 basis points of trail commission on bond funds.

Largest distributors by commission earned

Among banks, Citibank pipped HSBC to become the largest mutual fund distributor. HSBC’s commission earnings dipped from Rs 154 crore in FY11-12 to Rs 144 crore in FY12-13. On the other hand, Citibank’s earnings went up from Rs 129 crore to Rs 165 crore. The second largest distributor is HDFC Bank which earned Rs 161 crore, followed by HSBC at Rs 144 crore and NJ India Invest at Rs 124 crore.

Among the distributors who recorded highest growth in commission earnings were IIFL Wealth Management, Kotak Mahindra Bank, Citibank and ICICI Bank. Only Karvy and HSBC reported a decline, albeit a small one, in their commission earnings. The fall in HSBC’s commission could be a result of the negative net inflows of Rs. 1837 crore. Similarly, Karvy Stock Broking’s commission fell by Rs 2 crore and its net inflow was a negative Rs 1037 crore.

Assets under advisory

The assets under advisory are an indicator of how much commission the distributor earns. For instance, Citibank N.A managed AUM of Rs 17,338 crore and it earned Rs 165 crore (95 basis points of the assets under advisory). Similarly, HDFC Bank which managed Rs 23,672 crore earned Rs 161 crore which is 68 basis points of the assets under advisory. Citibank N.A and HDFC Bank collected Rs 1,777 crore and Rs 2,283 crore respectively.

The commissions earned by The Royal Bank of Scotland and Bajaj Capital remained  unchanged with their net inflows being negative at Rs 173 crore and Rs 494 crore respectively.

Changes in commission structure

There have been some changes in the way distributors are remunerated in the recent past. To increase the penetration of mutual funds, SEBI allowed AMCs to pay higher commissions for getting applications from B-15 cities.Distributors claim that AMCs are paying upfront commissions of up to 2% in B-15 towns. But the effects of rise in payouts in B-15 towns cannot manifest immediately. Industry officials are of the view that the top distributors earn less than 10% of their earnings from B-15 towns. As on April-June 2013, around 12% of industry’s assets are concentrated in B-15 towns.

To address the issue of churning, distributors are required to refund to AMCs, by setting off against future commissions, all incentives of any nature, including commissions received, that are subject to claw-back. From 01 January 2013, if investors switch from regular plans to direct plans, all upfront commissions paid to distributors is clawed-back completely or proportionate to the quantum of switch.

Commissions earned by top 20 mutual fund distributors