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MF entry load ban forces distributors rejig strategies

This article was posted on Aug 2, 2009 and is filed under Press Releases

From August 1, things will change dramatically for the mutual fund industry with investors
no longer having to pay an entry fee on their investments.

Fund houses already grappling with falling sales and rising expenses will now need to shell out extra commissions to distributors as an incentive for pushing their products. For this, leading fund houses have informally doubled commissions to around 2 per cent.

“Distributors who earned 3-4 per cent earlier will get 1-1.5 per cent now. Also earlier MFs were able to tap over 600 cities through small distributors but now this reach will be impacted as smaller distributors won’t have incentive to sell MFs. But hopefully in the big cities there won’t be a hit,” said Surajit Misra, executive VP at Bajaj Capital.

But many fear that lower commission may also make distributors to tweak their services based on the amount invested, which means a smaller investor may not get the best treatment as compared to a bigger investor. Clearly, agents selling mutual fund products for their survival will take the maximum hit.

“My focus will now be towards a bigger investor with a portfolio who wants advisory services,” said Misra.

Over the last one month, fund houses have left no stone unturned to boost sales from new fund launches to hiking the commission that they pay distributors for pushing NFOs – all in anticipation that it will get increasingly difficult to do business from August 1.

But what is surprising is that the industry hasn’t taken any counterproductive steps and doesn’t even have a new compensation model in place.

source: NDTV Profit

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