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Fund houses hike brokerages to 3-4%

Posted on: July 10th, 2009 and is filed under Brokerage Recommendations.

Fear lower collections after the entry load ban.Fund houses have aggressively started hiking brokerages for distributors to increase collections. The reason: They fear a lull in inflows after the ban on entry load comes into effect from August 1.

Industry sources said many fund houses were paying as much as 3-4 per cent in their equity schemes — a sharp rise from the 2.25 per cent entry load that an investor pays.

The market regulator, the Securities and Exchange Board of India (Sebi), has banned entry load from August 1.

“Asset management companies know that there could be a lull period after the ban on entry load kicks in. As a result, in the last few weeks, they have been pushing their schemes aggressively to increase their assets under management,” said a distributor.

Sources said the top ten fund houses were taking this route aggressively. Many fund houses have started offering target-based commission. “We have been offered a target-based brokerage. And if distributors are able to collect money aggressively, they will be able to sail through the tough three-four month period that is likely to follow after the ban on entry load takes effect,” said another distributor.

The fund houses are offering high brokerage especially for equity and equity-linked savings schemes. A fund manager said, “Once the money has been collected, exit loads will be hiked to deter investors.”

Distributors said some fund houses had raised the brokerage during June as well to counter the new fund offer (NFO) of Reliance Infrastructure Fund that collected over Rs 2,300 crore. Top fund houses like UTI, ICICI Prudential and Birla SunLife were offering attractive rates for specific schemes in June.

Things could get hotter as a number of NFOs are likely to hit the market this month. Fund houses that have received Sebi clearance will try to launch the schemes before August 1. In view of these NFOs, marketing spends are expected to be higher, say industry executives.

Quantum Equity Fund of Funds and Franklin Build India Fund are in the market already while others like Mirae Asset China Advantage, Tata Small and Midcap Infrastructure Fund and Shinsei Industry have filed their offer documents with Sebi.

source: Business-Standard

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