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Sell a mutual fund and see the world

Different mutual funds at different points of time during the year run various contests for IFAs/financial planners who are empanelled with them.

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Vivek Kaul & Sanat Vallikappen

MUMBAI: Have you wondered at times, why your independent financial advisor (IFA) or financial planner tries to sell you every new mutual fund scheme that hits the market? Or at times tries to sell an existing scheme whose performance is no great shakes?

The answer may well lie in the fact that different mutual funds at different points of time during the year run various contests for IFAs/financial planners who are empanelled with them. It is these contests that act as incentives for IFAs/financial planners to sell you a product which they need not (or should not) have sold to you in the first place.
The gifts given out typically tend to include foreign trips, DVDs, iPods, gold coins, mobile phones, food vouchers or even hard cash at times. 

Currently, Lotus India mutual fund is running a “Lotus India Fly for Sure” contest for advisors and planners. The contest promises trips to Istanbul in Turkey or Cairo in Egypt for those who are able to mobilise an investment of Rs 50 lakh or more into the Lotus India Tax Plan, the Lotus India Contra Fund and the Lotus India Midcap fund. The new fund offerings (NFOs) for the latter two funds, currently open for subscription, prescribe two conditions for IFAs to be eligible for the prizes. He/she must funnel at least 20% of his total mobilisation into the Lotus India Midcap fund. Also, the money invested should stay in the schemes for at least three months from the date of allotment.

And this is not all. There are a slew of amazing prizes that the mutual fund has lined up (See table). So even if the IFA/financial planner does not make it to the pyramids of Gaza in Egypt, he can still hope to make it to the shopping malls of Singapore. These prizes are over and above the normal commission they would make from selling these schemes.

“Lotus India mutual fund is a new fund house and despite its foreign parentage does not really have any performance to show. IFAs and financial planners wouldn’t really sell its schemes if there was nothing extra on offer. Also, being a new mutual fund, the limits they have set to qualify for these prizes are not very high. All one needs is to get a couple of high net worth individuals or non-resident Indians (NRIs) to invest”, says a market source who was unwilling to be named.

But Lotus is not the only mutual fund running such a contest. UTI Mutual Fund had a contest going on for its capital protection scheme series I, the NFO for which ended on January 25, 2007. There is an ongoing contest for the UTI Long Term Advantage Fund, which is still open. The prizes in both the cases are a trip to Brazil. Canbank Mutual’s  Multicap scheme had offered gold coins to its IFAs. 

Prudential ICICI Mutual Fund’s Fusion Fund series II has found an innovative way to attract IFAs/financial planners. By submitting two applications in Fusion Fund series II on February 23, 2007, they can hope to win one ticket for the movie Eklavya.

And companies don’t run such contests just during the NFO period. Birla Sun Life is currently running a Bonanza 2007 scheme for IFAs/financial planners empanelled with the fund. This contest is open for some of the equity schemes and monthly income plans and the prizes vary from a trip to south-east Asia (or a cash prize of Rs 35,000) for location level winners to a trip to Europe (or a cash prize of Rs 1 lakh) and Rs 2 lakh in cash to the all-India winner. The minimum qualification for being eligible for the all- India contest is a net mobilisation of Rs 5 crore. These investments, like in the case of Lotus, need to stay invested for at least three months. With just a three-month limit, no wonder IFAs/financial planners have an incentive to get investors to churn investments from one scheme to another. Having said this, Lotus India Mutual Fund has a line in the small print of the contest document which says “Distributors shall distribute the products as per the financial planning needs of investors”. 

Market sources also point out that Birla Sun Life is a regular at having such contests. Reliance Mutual Fund was also a regular till some time back, but hasn’t come out with such contests after becoming one of the top two funds.

And these are not the only guys doing it. Kotak Mutual Fund ran the “Kotak Phir Operation Climb” contest from October 16, 2006, to January 15, 2007. The scheme was open for all the equity schemes of the fund house, the balanced scheme and the MIP scheme. SBI mutual fund ran its ‘SIP to win’ contest and the Diwali Gold Dhamaka contest in October, 2006.

Mutual funds are not the only guys doing it. Big distributors also run such schemes from time to time. JM Morgan Retail Services Private Ltd was till recently running a contest for investments into HSBC Unique Opportunities Fund, whose NFO closed on February 22, 2007. Other than the upfront commission of 2.5% for investments lesser than Rs 5 crore, IFAs/financial planners were promised prizes like Sodexo vouchers, gold coins, printers, scanners and copiers, depending on the assets they were able to garner.

“Incentives are a part of every business that relies heavily on outside distributors. If you are selling a soap, giving extra incentives to distributors does not affect the end-consumer. But if an IFA/financial planner, influenced by the selling incentive being offered, sells a mutual fund scheme which has not been performing well, it can make a huge difference to the kind of return an investor gets,” says the same source. 

While the IFA is taken to Istanbul or Cairo, his customer may be taken to the cleaners.

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