Distributors can now receive trail commissions from asset management firms for assets transferred by an investor from one distributor to another. But how do the new norms affect investors?
Kirtan Shah, MD, Credence Family Office, spoke about direct and regular mutual fund schemes and their implications. The difference, he said on The Mutual Fund Show, is the expense you're willing to bear to get an intermediary on board, assuming he or she will be able to add a lot of value, versus you doing it directly.
Mutual fund distribution schemes include direct purchases through the websites of asset management companies or select platforms, while regular schemes are sold through distributors. Distributors earn revenue through distribution fees, such as monthly commissions from the AMCs.
Shah listed the trail commission's old norms:
While switching to a new distributor, trail commissions on the existing portfolio wouldn't be paid.
Not paying trail commission was to prevent poaching of clients.
"As far as mutual fund companies are concerned, commercially, we're indifferent, whether it comes through direct or comes through a intermediary," according to Aashish P. Somaiyaa, CEO, White Oak Capital AMC. "It's a regulatory requirement that you offer both--direct and regular."
"Commission is less and less of an influence for a distributor and meritocracy of products and performance and team managing those funds is getting more and more prevalence," Somaiyaa said.
He pointed to the new trail commission's norms:
Trail commissions on existing portfolios can be paid to new distributors after a cooling period.
Cooling period has been set at six months.
Watch to know more
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
