If you are wondering why your neighbourhood mutual fund agent is not holidaying either in the Alps or on the beaches in Maldives or Mauritius at this time of the year, blame it all on the Sensex.
The secular decline in stocks for the better part of this year, coupled with the market regulator Sebi’s move to amend a key clause in the fee structure for mutual funds, has seen fund houses going slow on the incentives they offer to MF agents. But industry officials say this could well be a blessing in disguise as fund houses will now be more prudent with the money they dedicate to distribution.
Over the past few years, the need to score over competition in terms of assets under management was forcing fund houses to come up with innovative ways to keep the top performing agents in good cheer. Besides being paid commissions for the money they bring in, these distributors also got loyalty bonuses and foreign trips as top ups for their performance. But with the benchmark indices heading southwards, investor sentiment has gone for a toss.
New fund offerings have now dried up and freebies to distributors such as trips to London or Singapore are also now being sparingly offered by fund houses.
Industry watchers also say MF houses not being allowed to charge fees over a period of time — called amortisation in technical terms — for close-ended schemes is a key reason for this change. Putting open-ended schemes on par with close-ended ones was the last major reform that M Damodaran, SEBI former chief, brought in, before demitting office.
The secular decline in stocks for the better part of this year, coupled with the market regulator Sebi’s move to amend a key clause in the fee structure for mutual funds, has seen fund houses going slow on the incentives they offer to MF agents. But industry officials say this could well be a blessing in disguise as fund houses will now be more prudent with the money they dedicate to distribution.
Over the past few years, the need to score over competition in terms of assets under management was forcing fund houses to come up with innovative ways to keep the top performing agents in good cheer. Besides being paid commissions for the money they bring in, these distributors also got loyalty bonuses and foreign trips as top ups for their performance. But with the benchmark indices heading southwards, investor sentiment has gone for a toss.
New fund offerings have now dried up and freebies to distributors such as trips to London or Singapore are also now being sparingly offered by fund houses.
Industry watchers also say MF houses not being allowed to charge fees over a period of time — called amortisation in technical terms — for close-ended schemes is a key reason for this change. Putting open-ended schemes on par with close-ended ones was the last major reform that M Damodaran, SEBI former chief, brought in, before demitting office.
Kotak Asset Management chief executive, Sandesh Kirkire says that with fresh investments from retail investors drying up and markets ruling flat, it is obvious that “distribution spend” at fund houses has come down. “How much funds spend in the critical process of reaching the investor through the distributor is direct function of the flows,” he adds.
He also points out that Sebi banning amortisation has meant that there is absolutely no difference between new fund offerings and existing schemes, as far as distributors are concerned. So, the incentive structure has to change over a period of time, he adds.
The head of a large national distribution agency says most of the trips that have taken place over the past couple of months were the ones planned a long time ago — ICICI Prudential AMC recently took its platinum category distributors to an all-paid trip to Shanghai. “But fresh trips are not on the horizon anymore,” he quips.
A few local trips on specific projects, he predicts, will be the norm in months to come. Sunil Subramaniam, who heads marketing and distribution at Sundaram BNP Paribas, says earlier fund houses spent extravagantly on distributors.
“Now, there will be more accountability, as in only performers will be rewarded,” he says.
He also points out that Sebi banning amortisation has meant that there is absolutely no difference between new fund offerings and existing schemes, as far as distributors are concerned. So, the incentive structure has to change over a period of time, he adds.
The head of a large national distribution agency says most of the trips that have taken place over the past couple of months were the ones planned a long time ago — ICICI Prudential AMC recently took its platinum category distributors to an all-paid trip to Shanghai. “But fresh trips are not on the horizon anymore,” he quips.
A few local trips on specific projects, he predicts, will be the norm in months to come. Sunil Subramaniam, who heads marketing and distribution at Sundaram BNP Paribas, says earlier fund houses spent extravagantly on distributors.
“Now, there will be more accountability, as in only performers will be rewarded,” he says.
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