MFs dole out incentives to buoy equity schemes

With fund inflows literally stopping post entry load ban, Indian mutual fund houses are resorting to a solid distribution push to sell their wares. They are giving upfront commission (from their own pockets) to ensure they get lot of retail applicants. Sources in the industry say that distributors are gettting around 1.5-2% for selling balanced, equity and monthly income plans (MIP) schemes, while it is as high as 4-5% for equity-linked saving schemes (ELSS) . Commissions have increased in recent times, according to people in the business of distribution.

With equity markets teetering at higher levels, MIP schemes (with partial exposure to equities) seem to be the flavour of the season. “Fund houses are aggressively pushing MIPs with higher commissions. It Is being pitched as a better alternative to fixed deposits (FD) among high net worth individual (HNI)” said a head of sales of the leading mutual fund house. MIP usually has dividend and growth option with equity exposure varying from 10-25% of portfolio. The corpus of several MIPs has more than doubled in the last four-six months.

A Balasubramanian, CEO of Birla Sun Life Mutual Fund says, “Investors in the last few months have shown interest in the MIPs as it has the component of equity which can give some extra returns.”

Market participants say that, with no new fund offer (NFO) coming in the last few months, fund houses are instead opting to give extra commission on their existing schemes. After the ban on entry load by Securities and Exchange Board of India (Sebi) from August, 2009 there has been continuous outflows from the equity schemes. From August to December in last year equity schemes saw redemptions of over 7,000 crore. However in January and February equity schemes reported some inflows, but again in March and April there were redemptions.

“Fund houses are giving higher commission for MIPs as they are mostly hybrid products with 80:20 ratio of debt and equity. But some fund houses charge expense ratio same as any other equity scheme, so they don’t mind paying the upfront commission of over 2%,” said Dhirendra Kumar, CEO of Valueresearch.

Some of the fund house charge expense ratio of over 2-2.5% p.a for the MIPs.

Apart from MIPs, ELSS schemes are also sold by distributors aggressively as they get a hefty 5% upfront commission — thanks to the three year lock-in.

While there are no trail commissions paid during the lock-in period, from the fourth year trail commission of over 0.5% are paid annually....

Source: http://www.financialexpress.com/news/mfs-dole-out-incentives-to-buoy-equity-schemes/617991/2