Mutual fund distributors’ commissions grow in FY17

Top mutual fund distributors in the country saw their gross commissions payout in 2016-17 increase by 36%, according to the data released by the Association of Mutual Funds of India (Amfi). Top 10 distributors, based on commissions paid in 2016-17, received Rs2,379.42 crore in commissions in 2016-17, compared to Rs1,725.67 crore paid to them in 2015-16 (see table).

AMFI discloses commissions of distributors that meet any of the four criteria—present in at least 20 locations or managing assets worth at least Rs100 crore or those that have received commissions worth at least Rs1 crore across all mutual funds put together or above Rs50 lakh from a single fund house. As per guidelines laid out by the capital markets regulator, the Securities and Exchange Board of India (Sebi), it is mandatory for fund houses to disclose commissions they pay to these distributors on their websites. Additionally, Amfi collates this data and presents a cumulative picture on its own website.

There were 540 distributors in 2015-16 that fit the criteria defined by Sebi, and the number of such distributors went up to 687 in 2016-17. All these distributors combined together earned commissions of ₹ 4,986.67 crore in 2016-17 compared to ₹ ,657.70 crore in the previous year.

The growth in commissions is in line with the growth in assets under management (AUM) with the mutual funds in the country. According to Amfi, the AUM for mutual funds grew 35% between May 2016 and May 2017 from ₹ 14.46 trillion (1 trillion = 1 lakh crores) to ₹ 19.47 trillion.

The rates at which the commission is paid has remained stable over the years. What has changed is that the asset gathering of the mutual fund industry has gone up significantly, said Shyam Sunder, managing director, PeakAlpha Investment Services Pvt. Ltd.

“Because of the buoyancy in the equity markets, the NAVs of the assets under management has gone up, which has lead to AUMs going up. Also, the industry has done a good job in bringing more people in the fold of mutual funds and penetrating the markets outside big cities,” he said.

Manish Gadhvi, zonal sales head, NJ India Invest Pvt Ltd, which earned the highest commission in 2016-17, said that the actual commission earnings for distributors are in line with the returns that mutual fund investors get. “Commission is a function of two things—upfront purchases and trail (from AUM). Majority of it will be trail. If the commission is adjusted with the service tax payment, which is done by the advisors, and upfront purchases,” he said.

This disclosure brings transparency and should also address the concerns that there is mis-selling of mutual funds, he said. “Customer and distributor interests are already aligned. This also proves that there is hardly any mis-selling. I have not come across end investors asking the distributors how much they earn. The real-end investor does not even see it, as long as they are making good money. And they broadly know that the advisor will get 1%, which even they feel is fair,” Gadhvi said.

The top 10 distributors list is dominated by large banks, mostly private. The top 10 distributors are NJ IndiaInvest Pvt Ltd, HDFC Bank Ltd, ICICI Bank Ltd, Axis Bank Ltd, Kotak Mahindra Bank Ltd, Citibank N.A, State Bank of India, ICICI Securities Ltd, IIFL Wealth Management Ltd and Standard Chartered Bank. SBI, which was at 13th position in 2015-16 moved up to 7th position in 2016-17, with its mutual fund gross commission earnings going up from Rs62.12 crore in 2015-16 to Rs178.79 crore in 2016-17.

Banks being among the top distributors is not surprising, Sunder said. “Among the largest mutual fund distributors in the country have been banks. Also, people keep their money in the banks. And the banks have the ability to reach out to a customer and tell them to buy a product like insurance or mutual funds instead of keeping money in a savings account. They have a strong platform to do so,” he said.