New equity product launches by fund houses have seen a slump following the capping of commissions by the market regulator. Only 42 new fund offers (NFOs), together mobilising Rs 4,940 crore, were launched by the Rs 13-lakh crore mutual fund (MF) sector in 2015-16. In comparison, 88 equity NFOs to raise a record Rs 15,556 crore were launched in the preceding financial year.
Industry body Association of Mutual Funds in India (Amfi), with the backing of Sebi, under the best practices guidelines framework, has asked fund houses to cap upfront commission to distributors at one per cent. Further, the sector has been asked to opt for the trail-based model when it comes to distributors’ payout and do away with the upfront model. The move has tied the hands of fund houses in incentivising the distributors, through whom most of the equity MF products are sold. Year 2014-15 saw an NFO boom as commissions on certain close-ended NFOs were as high as seven per cent.
