Mutual fund distributors' commissions may fall further

Mutual fund (MF) distributors may see a fall in their commissions as Association of Mutual Funds of India (Amfi) and fund houses plan to cut the expenses of asset management companies (AMCs) by reducing the commission paid to the distributors.

There is a buzz in the industry that fund houses may reduce the distribution commission by 15 basis points (bps).

In its Board meeting on March 28, Securities and Exchange Board of India (Sebi) had proposed a reduction in the additional expenses that AMCs are allowed to charge from 20 basis points to five basis points. Currently, fund houses can charge additional expenses of up to 0.20% or 20 basis points of the daily net assets of mutual fund schemes in lieu of the exit load credited to the scheme.

In 2012, Sebi had allowed fund houses to charge 20 bps of assets under management (AUM) of the scheme in lieu of exit loads. A reduction in expenses could improve penetration of mutual funds.

According to a mutual fund distributor, the reduction would differ across fund houses as they have different commission structures. Distributor commissions are already lower than earlier with the regulator putting an end to upfront commission and most fund houses shifting to a trail commission model, he said. In case of open ended equity and balanced schemes currently, the additional expense charged is significantly higher than the actual credit back of exit load to the scheme. In comparison, the additional charge is lower in the case of open-ended debt schemes.

Across all open ended equity and balanced schemes, an average exit load of around five bps has been credited back whereas an average additional expense of 18-20 bps has been charged to such schemes.