Upfront commissions
paid to distributors for selling open-ended equity mutual fundschemes have risen to 2% to 3% in
the last 2 to 3 months from 1% to 1.5% paid earlier, said industry observers.
High commissions are
also being paid for closed-ended mutual fund schemes, which have gained
popularity since September last year (2013). Upfront commission for
closed-ended equity schemes vary between 5% and 7%. What's more, it is believed
that distributors are taking advantage of the situation & actively churning
assets more than a year old to rake in higher commissions.
Mutual Fund houses
should not pay commissions out of their own pocket & must taken into
account likely expenses that they have to incur before deciding on the quantum
of commission to be paid. High commissions generate unhealthy competition and
are suicidal in the long run.
Expenses included
audit fees, filing fees, listing fees, R & T fees and other administrative
charges.
Experts warn that the
higher commission strategy could backfire in the long run as it could impact
profitability of mutual fund companies.
“High commissions may impact profitability
since AMCs have to pay the money out of their own pocket, unless the assets
remain with them for at least 3-4 years,” said Mr. Niranjan Risbood,
Director (Fund research), Morningstar India.
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