Pvt banks plan size-based fee structure for MF investors

MUMBAI: Private sector banks ��� the largest distributors of mutual funds ��� plan to adopt a ticket size-based variable fee structure for advisory services offered to mutual fund investors from August 1. This means that while investors will be paying a lower commission than before, they may not be able to negotiate the rate with bigger distributors.

Last month, Sebi had ruled that mutual funds cannot charge investors an entry load, with effect from August 1, and that investors will directly pay the distributor his commission, which would be a rate agreeable to both parties.

���If a bank charges 2% as a commission on mutual funds, the customer has a choice to go to different banks and get their quotes and make an informed choice. It���s difficult for banks to sit and negotiate with every customer,��� says KVS Manian, group head ��� retail liabilities & branch banking, Kotak Mahindra Bank.

���As far as retail customers are concerned, we are planning to have a schedule of charges which mentions the fee and charges across different ticket sizes of investment,��� he said.

People familiar with the issue said banks will focus on selling alternate high commission products such as insurance and Ulips, given that there is no clear income derived from selling mutual funds. ���Clearly, the distributors will have to be paid in some form for their work. If it is not going to come from the investor, AMCs will have to sit down with banks to work out an arrangement,��� said a senior official with one of the larger private sector banks.

Asset management companies with larger fund houses will be in a position to compensate distributors, but smaller players will take a hit on their margins. ���As of now you have the top 7-8 AMCs making profits. Soon the numbers could dwindle down to 2-3,��� said the head of a leading domestic AMC.

He also feels that over a period of time, one will see a change in the business model of other products. Investor groups will begin to question as to why the average investor pays a high commission to invest in other products. This, in turn, will see the entire intermediation costs come down.

Citibank business manager Sameer Kaul says in all likelihood, the bank will charge clients each time they transact through us. ���We may not recommend mutual funds which have a high exit load,��� he adds.