Brokers gain at the expense of small MF distributors

Early signs reveal that the days of small mutual fund advisors and distributors might soon be over.

Early signs reveal that the days of small mutual fund advisors and distributors might soon be over. With the National Stock Exchange today operationalising the mutual fund trading platform with UTI Mutual Fund as the first participating fund house,it may not be long for all fund houses to join the platform,which will reduce their operating costs radically,but also affect the business of small distributors.

After abolition of entry load in mutual fund schemes by Sebi,which enabled investors to pay negotiable fee to advisors,this move comes as a double whammy for non-institutional distributors as they will find it very difficult to make any money by selling MF schemes. According to the Association of Mutual Funds in India (AMFI),there are over 1 lakh people who have passed the AMFI test for distributing MF products till date.

With access to 2 lakh terminals across 1,500 locations,buying and selling of mutual fund units will be a much easier,quicker and effortless task for investors as all that they will have to do is to place an order with a broker for a particular mutual fund. The MF trading platform will bring in more business for stock brokers,who will be compensated by MF houses for selling their schemes. At present MF houses pay anything between 0.5 per cent to 1 per cent commission to distributors and the same amount is expected to be paid to brokers.

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This channel for distribution will bring in higher cost efficiencies and allow greater participation by investors. MF houses will save money as they would not be issuing physical certificates to people opting to hold their units in demat form. These are the days of consolidation and only systems and processes that bring in cost efficiencies will survive, said the head of marketing of an institutional broking house.

Though it is in investors interest that they will have access to an additional channel for trading in MFs,in the coming days it is quite possible that brokers might start acting like the distributors of the past pushing schemes of a fund house which pays them the highest commission. It is advisable that they buy MF schemes on the basis of their merit and past record and not go by what the distributor or the broker tells them.