The Association of Mutual Funds (Amfi) is coming out hard on distributors indulging in malpractices. "We have suspended licences of two distributors and have issued warning letters to few other distribution houses," said HN Sinor, CEO of Amfi.
Amfi has sent letters to four major fund distributors—HSBC, HDFC Bank, Kotak Mahindra Bank and NJIndia Invest, according to industry sources. In December last year, Sebi had issued circular stating that several investors who wished to switch from an existing mutual fund distributor to another were facing unwarranted hardship. Market regulator then had asked all the asset management companies (AMC) not to compel investors to get 'No Objection Certificate' from the existing distributor if the investors wanted to switch.
Soon after, several distributors started luring big investors away from their peers. Some even offered upfront commission of over 1-1.25% to switch from the existing distributor. In return, distributors earned money in the form of trailing fees from the AMCs. Trailing fees are paid by AMCs to distributors - usually between 0.25-0.50% annually - for the period the investor stays with the fund.
Distribution business has got tougher ever since the ban was levied on entry load from August 1, 2009. These practises seem to be desperate measure to improve revenues, when the overall revenue pie is dwindling. Interestingly, distributors who have apparently got a warning from Amfi are also among top distributors in the country.
As per industry data, as on January 2010, HDFC Bank, HSBC, Citibank, Kotak Bank and StanChart were among the top distributors in terms of assets under management (AUM). As per news reports, HDFC Bank, HSBC and Kotak Bank have got a warning letter from Amfi. While HDFC Bank has AUMs of Rs 27,548 crore, it was Rs 10,614 crore for HSBC and Rs 8,837 crore for Kotak Bank. HDFC Bank, Kotak Bank and Citibank were among the distributors to show maximum growth in their AUMs. As per latest Amfi data, the overall AUM of the mutual fund industry was close to Rs 7,43,000 crore.
Banks dominate the distribution scene in India, amassing bulk of the mutual fund AUMs and some of the distributors, as could be seen, have assets more than that of many AMCs.
"We had recently noticed that distributors are luring investors to switch distributors on a large scale" an official from Amfi said on condition of anonymity. Also, now we have threatened the distributors with cancellation of licences if this malpractices continuous."...
Source: http://www.financialexpress.com/news/distributors-face-amfi-heat;-two-licences-cancelled/602048/2
Amfi has sent letters to four major fund distributors—HSBC, HDFC Bank, Kotak Mahindra Bank and NJIndia Invest, according to industry sources. In December last year, Sebi had issued circular stating that several investors who wished to switch from an existing mutual fund distributor to another were facing unwarranted hardship. Market regulator then had asked all the asset management companies (AMC) not to compel investors to get 'No Objection Certificate' from the existing distributor if the investors wanted to switch.
Soon after, several distributors started luring big investors away from their peers. Some even offered upfront commission of over 1-1.25% to switch from the existing distributor. In return, distributors earned money in the form of trailing fees from the AMCs. Trailing fees are paid by AMCs to distributors - usually between 0.25-0.50% annually - for the period the investor stays with the fund.
Distribution business has got tougher ever since the ban was levied on entry load from August 1, 2009. These practises seem to be desperate measure to improve revenues, when the overall revenue pie is dwindling. Interestingly, distributors who have apparently got a warning from Amfi are also among top distributors in the country.
As per industry data, as on January 2010, HDFC Bank, HSBC, Citibank, Kotak Bank and StanChart were among the top distributors in terms of assets under management (AUM). As per news reports, HDFC Bank, HSBC and Kotak Bank have got a warning letter from Amfi. While HDFC Bank has AUMs of Rs 27,548 crore, it was Rs 10,614 crore for HSBC and Rs 8,837 crore for Kotak Bank. HDFC Bank, Kotak Bank and Citibank were among the distributors to show maximum growth in their AUMs. As per latest Amfi data, the overall AUM of the mutual fund industry was close to Rs 7,43,000 crore.Banks dominate the distribution scene in India, amassing bulk of the mutual fund AUMs and some of the distributors, as could be seen, have assets more than that of many AMCs.
"We had recently noticed that distributors are luring investors to switch distributors on a large scale" an official from Amfi said on condition of anonymity. Also, now we have threatened the distributors with cancellation of licences if this malpractices continuous."...
Source: http://www.financialexpress.com/news/distributors-face-amfi-heat;-two-licences-cancelled/602048/2
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