Investors in Quantum Asset Management Co. Ltd’s mutual fund schemes—those who had invested through distributors—are in a tizzy. The asset management company (AMC) is asking them to switch to the distributor plans. If they don’t switch, they stay on direct plans.
Initially, Quantum AMC did not pay distributor commissions. Still, a few distributors sold its mutual fund schemes, such as Fundsindia.com, one of Quantum AMC’s largest distributors. However, some of these distributors—like Fundsindia.com—have told their Quantum AMC customers to sell their existing units and then re-buy afresh. Mint has seen this email.
In February, Quantum AMC launched regular (distributor) plans across all its schemes. Read about it here: bit.ly/2oUxJzF. Till then, it used to offer only direct plans, which have no embedded distributor commissions. Now, Quantum AMC’s customers, who came through distributors, will need to switch their schemes to distributor plans because the current plans in which they are invested would become direct plans. If you had invested through an online distributor, it would have got in touch with you by now. You will need to visit your website and follow the procedure to complete the switch.
This switch does not mean that you will have to liquidate your investment and will get money in your bank account.
One pitfall of this switch is that, while doing it, you may need to pay capital gains tax if you had invested in Quantum’s equity schemes less than 1 year ago, and in debt schemes less than 3 years ago.
“The fund house should have handled this better, by letting the existing plan remain as a distributor plan. A new plan should have been introduced as direct plan," says Srikanth Meenakshi, co-founder and chief operating officer, Fundsindia.com.
Jimmy Patel, chief executive officer, Quantum Asset Management Co. Ltd disagrees: “When we had launched, we had made it clear to all our investors that these are direct plans. Hence, we could not turnaround now and say that these are distributor plans and start charging higher fees (through distributor commission)."
When you invest in a mutual fund through a distributor, she gets regular updates on your investments, like the daily value of your portfolio, for the funds that you bought through her. This makes it easier for her to serve you. For instance, if you want a duplicate account statement, she can get it for you from the fund house.
But now, distributors won’t get any details of their clients’ direct plan investments, as per the capital market regulator’s regulations. Hence, you have to switch to the distributor plan for your existing investments, to continue being serviced by your distributor.
If your distributor happens to sell direct plans (assuming she is a registered investment adviser and can therefore get details of your investments to be able to service you), life goes on as usual and you don’t need to switch.