Most MF agents opt out of 'transactional charge'

MUMBAI: The 'transactional charge' levied on mutual fund investors for the benefit of distributors has not found enough takers among the latter. About 39,000 of the 45,000 Amfi-registered fund distributors will not levy transactional charge on investors.
Distributors, who have opted out of transactional charges, will continue charging advisory fees mutually agreed between fund sellers and investors. In July, regulator Sebi had imposed a transactional charge of Rs 100 on existing MF investors and Rs 150 on first-time investors — an attempt by the regulator to incentivise distributors.

Many distributors failed to see any merit in such a move as Rs 100 charged on existing investors and Rs 150 charged on new investors only reduced chances of collecting or soliciting a higher advisory fee from investors. At this point, fund industry body Amfi asked distributors to state their preference, and distributors, who opposed transaction charges, were given an option to opt out of the scheme.

Distributors opting in will be allowed to collect Rs 100 from existing investors and Rs 150 from newer investors on investments above Rs 10,000. Transaction charges will be levied over and above advisory charges levied by them. "Only 6,000 distributors have opted in. A majority are independent financial advisors and small-time distributors from two-tier cities and towns," said an Amfi official.

Amfi will give out the names of distributors who have opted in and opted out to AMCs, which in turn will co-ordinate with transfer agents for paying transaction charges to distributors who have opted in.

AMCs will also hand out the names of distributors (to transfer agents) who have opted out of transaction charges. According to industry sources, majority of the distributors have decided to opt out as they feel such a levy could restrain their rights to demand a higher advisory fee.

"Investors will not pay higher advisory fees if they collect transaction charges," said Jimmy Patel, CEO, Quantum MF. "Several distributors are of the opinion that Rs 100 is way too less for the distribution effort they undertake," Patel added. Fund commissions have fallen post-entry load ban in August 2009.

"Many large distributers have opted in for transaction charges. It makes sense for distributors, who service 5,000-10,000 clients a month, to opt for transaction charges," said Rajiv Bajaj, MD of Bajaj Capital.

shailesh.menon@timesgroup.com