Posts Tagged ‘Distributors’

IFAs tying up with Brokerage Houses to turn Sub-Broker :)

IFAs - Sub-Broker

IFAs tying up with Brokerage Houses to turn Sub-Broker

 

Independent financial advisors (IFAs) are tying up with large distributors and brokerage houses to act as sub-brokers, to keep themselves afloat after the entry load ban on mutual funds.

Earlier, IFAs used to make most of their earnings by selling fund schemes.

🙂

A sub-broker is a person who acts on behalf of a stock-broker as an agent, or otherwise for assisting the investors in buying, selling or dealing in financial products through stock-brokers.

Many independent financial advisors have approached the company asking it to create a platform through which they can offer advisory services to their clients.

There is a plan by companies also to launch such a platform in coming weeks.

Broking industry representatives said that IFAs have been left with no option but to tie up with large brokerage houses after they have been denied of their basic source of income (2.25 per cent entry fee on mutual fund investment).

Brokerage Houses are set to provide them with basic infrastructure and resources to provide investors advisory services.

🙂

IFAs are now required to charge a fee for providing their advisory services, instead of a commission on each transaction that they received earlier.

🙂

The Securities and Exchange Board of India (Sebi) had asked mutual fund distributors not to charge any entry load with effect from August 1. It had instead asked them to charge as per the service provided.

It means that a distributor cannot charge any fee for merely selling a product but can charge only if they offer advisory services to investors.

The new norm has queered the pitch for thousands of independent financial advisors, who used to make their earnings by merely selling mutual fund products.

Jagannadham Thunuguntla, equity head of Delhi-based brokerage house SMC Capital, said that the entry load ban has come as blessing in disguise for large brokerage and distribution houses.

“Most of the mutual fund business would now be routed through big distribution houses as IFAs struggle to provide the necessary advisory service on their own.

The sub-broker model is one of the few viable options available with the small financial advisors,” he added.

When asked if IFAs approached SMC showing their interest in becoming sub-brokers, Thunuguntla said that though inquiries were not so aggressive, they expect more IFAs to come seeking their help as the time passes.

🙂

Sebi’s Another Jolt to the Fund Houses – MF Exit Load for 1st Year !!

MF Exit Load Charges


Within weeks of shaking up the mutual fund industry by abolishing entry load in all schemes and moving to a uniform exit load regime, Sebi has given another jolt to the fund houses.

😉

The Securities and Exchange Board of India (Sebi), in a meeting with mutual fund heads, has recommended that the tenure for charging of exit loads be made uniform at one year.

This move is seen as Beneficial for Investors.

🙂

Sebi suggested fund houses to move to a regime of charging exit loads only for the first year of investments.

🙂

After Sebi mandated that all entry loads should go and exit loads should be uniform across-the-board, fund houses had gone into a rejig mode with their finances so that they could compensate MF distributors.

The change in the compensation structure was done with the assumption that exit loads could be there for perpetuity.

But “the recent Sebi suggestion on exit load has sent all those changes to the compensation structure for a toss,’’ said a top official at a fund house.

😦

The Sebi chairman C B Bhave advised that increasing the exit tenure beyond a year would not be in keeping with investor interest.

🙂

MF industry officials said that limiting exit load to a year could lead to increased inclination among investors to move out of a scheme if the returns over one year are good.

😦

Earlier, as part of the rejig exercise to change the compensation structure, a host of fund houses had increased exit load period.

Now if Sebi’s advice becomes a rule, all those will have to be reversed, industry players said.

🙂

However, as the CEO of a fund house pointed out that so far Sebi has not come out with any formal letter. “It’s still evolving. I believe a lot of things can happen before it is formally notified,’’ said the fund house CEO.

🙂

Within weeks of shaking up the mutual fund industry by abolishing entry load in all schemes and moving to a uniform exit load regime, Sebi has given another jolt to the fund houses.

The Securities and Exchange Board of India (Sebi), in a meeting with mutual fund heads held on Tuesday, has recommended that the tenure for charging of exit loads be made uniform at one year.

In a late evening meeting on Tuesday, Sebi suggested fund houses to move to a regime of charging exit loads only for the first year of investments.

After Sebi mandated that all entry loads should go and exit loads should be uniform across-the-board, fund houses had gone into a rejig mode with their finances so that they could compensate MF distributors.

The change in the compensation structure was done with the assumption that exit loads could be there for perpetuity.

But “the recent Sebi suggestion on exit load has sent all those changes to the compensation structure for a toss,’’ said a top official at a fund house.

“Our capacity to pay to the distributors will reduce substantially,’’ said the head of a local fund house.

“The Sebi chairman C B Bhave advised that increasing the exit tenure beyond a year would not be in keeping with investor interest,”

MF industry officials said that limiting exit load to a year could lead to increased inclination among investors to move out of a scheme if the returns over one year are good.

Earlier, as part of the rejig exercise to change the compensation structure, a host of fund houses had increased exit load period.

Now if Sebi’s advice becomes a rule, all those will have to be reversed, industry players said.

However, as the CEO of a fund house pointed out that so far Sebi has not come out with any formal letter. “It’s still evolving. I believe a lot of things can happen before it is formally notified,’’ said the fund house CEO.

How to choose a Mutual Fund?

mutualfunds

Mutual funds are the best investment tool for the retail investor as it offers the twin benefits of good returns and safety as compared with other avenues such as bank deposits or stock investing.

Choose the wrong fund and you would have been better off keeping money in a bank fixed deposit. Keep in mind the points listed below and you could at least marginalise your investment risk:

1) Past performance –

While past performance is not an indicator of the future it does throw some light on the investment philosophies of the fund, how it has performed in the past and the kind of returns it is offering to the investor over a period of time.

Also check out the two-year and one-year returns for consistency.

How did these funds perform in the bull and bear markets of the immediate past?

Tracking the performance in the bear market is particularly important because the true test of a portfolio is often revealed in how little it falls in a bad market.

2) Know your fund manager

The success of a fund to a great extent depends on the fund manager.

The same fund managers manage most successful funds. Ask before investing, has the fund manager or strategy changed recently?

For instance, the portfolio manager who generated the fund’s successful performance may no longer be managing the fund.

3) Does it suit your risk profile?

Certain sector-specific schemes come with a high-risk high-return tag. Such plans are suspect to crashes in case the industry loses the marketmen’s fancy.

If the investor is totally risk averse he can opt for pure debt schemes with little or no risk. Most prefer the balanced schemes which invest in the equity and debt markets. Growth and pure equity plans give greater returns than pure debt plans but their risk is higher.

4) Read the prospectus

The prospectus says a lot about the fund. A reading of the fund’s prospectus is a must to learn about its investment strategy and the risk that it will expose you to.
Funds with higher rates of return may take risks that are beyond your comfort level and are inconsistent with your financial goals.

But remember that all funds carry some level of risk. Just because a fund invests in does not mean it does not have significant risk.

Thinking about your long-term investment strategies and tolerance for risk can help you decide what type of fund is
best suited for you.

5) How will the fund affect the diversification of your portfolio?

When choosing a mutual fund, you should consider how your interest in that fund affects the overall diversification of your investment portfolio. Maintaining a diversified and balanced portfolio is key to maintaining an acceptable level of risk.

6) What it costs you?

A fund with high costs must perform better than a low-cost fund to generate the same returns for you.

Even small differences in fees can translate into large differences in returns over time.

Finally, don’t pick a fund simply because it has shown a spurt in value in the current rally.

Ferret out information of a fund for atleast three years. The one thing to remember while investing in equity funds
is that it makes no sense to get in and out of a fund with each turn of the market.

Like stocks, the right equity mutual fund will pay off big — if you have the patience.Similarly, it makes little sense to hold on to a fund that lags behind the total market year after year.

Sebi’s MF ruling may lead to service tax loss !

Mutual funds

Sebi’s decision to abolish entry loads in all mutual fund (MF) schemes can have certain implications as discussed below :

😦

While there could be huge slippages of service tax paid by the fund industry, it could also lead to proliferation of bogus independent financial advisors (IFAs) without proper certification, and in turn mis-selling of MF schemes, industry officials said.

😦

They also believe that in the long run, the decision could lead to cartelisation in the MF industry with just a handful of large funds houses and distributors ruling the market.

🙂

Currently, when an investor opts for a scheme, the fund house directly deducts service tax from the commission it pays to the distributor or IFA.
In turn, the fund house deposits this with the government.

🙂

But very soon, fund houses will not have anything to do with the service tax over distribution commission, since under the new structure, investors will pay the commission directly to the distributor/IFA.
So the onus of paying service tax will now be on the distributor/IFA.

🙂

Chances are that there will be substantial leakage of revenue for government through under-reporting or non-reporting of advisory commission,’’ said a top fund industry official at an AMC.

Industry estimates that in the last financial year total service tax paid by the fund houses was about Rs 160 crore. ‘‘A large chunk of this could remain with advisors now’’ the official pointed out.

😦

Another fallout of the changed fee structure could be proliferation of advisors without proper training and registration in the fund industry.

After this ruling and change, anyone can become an advisor and charge the investor for advice,’’ a top official at a local fund house said.

😦

Another fallout could be squeezing out of AMCs and distributors with limited financial resources and growth of larger players.
In the changed scenario of no entry load, AMCs will have lesser funds at their disposal for marketing and business expansion.

😦

The fund industry is on way to suggests a way to get out of this situation.

Stay tuned ! 🙂

Sebi’s entry load law boosts client servicing online :)

Sebi’s entry load law boosts client servicing online

The recent Sebi move to do away with entry load in all mutual fund (MF) schemes has opened up opportunities for technology-driven companies in the fund industry to partner MF distributors to reach out to investors in a cost effective manner.

🙂

At least two companies—TechProcess Solutions and iFAST Financial—are offering a suit of technology solutions to MF distributors, independent financial advisors (IFAs) and asset management companies (AMCs) to service existing clients and tap prospective customers online.

🙂

These solutions have the potential to reduce costs by at least 20-25% over what they would have spent to offer the same services through the offline mode, officials said.

Once volumes pick up, cost reduction could even be higher.

🙂

iFAST, a Singapore-based company is trying out two models.

While it is trying to get distributors on its platform who could use its technology to service their own clients, individual investors could also use it without going through distributors.

Both platforms are aimed at eliminating most processes involved in offline transactions, in the process bringing down costs substantially.

🙂

In the new remuneration structure that will be effective from August 1, investors will have to pay their fund advisors and distributors for their services directly. 🙂

Brokerages plan revised cost structure for MF distribution

Brokerages plan revised cost structure for MF distribution

Distributors of mutual funds are planning to revise their transaction cost structure to attract investors as the charge for buying units in a mutual fund goes from tomorrow, something they believe will increase sales.

:-/

Distributors are now waiting to see whether asset management companies (AMCs) announce distribution commission for various MF schemes and on that basis they would charge advisory commission from customers.


On June 18, market watchdog Securities and Exchange Board of India asked mutual funds not to deduct marketing and distribution charges from the investment made by subscribers.


“Days of easy and guaranteed money for distributors are gone.

AMCs need to sacrifice their margins now and pay the distributors or they can mop up advisory commissions from investors linked to certain schemes.


However, the business of big distributors is unlikely to be hurt,” SMC Capitals Equity Head Jagannadham Thunuguntla said.


Distributors believe that although in the short term their revenue might be affected, in the medium to long term it would pick up as more investors come in. 🙂