From the newsletter “The Honest Truth” from EquityMaster.
On August 1st, 2009 the Indian mutual fund industry enters a new era.
After years of pushing mostly irrelevant products through a distribution channel that grew fat on the ignorance of investors, the Indian mutual fund industry has been forced to lay bare the facts. From August 1, 2009 all Indian mutual funds will have a cap on what they pay their distributors.
And investors can pay their distributors and financial advisors what they believe to be the value of the advice given.
Over the years, the elephants in the Indian mutual fund industry – and the distributors that made these elephants dance to their tune – have spread a series of questionable “facts”.
Each “fact” was in many ways designed to support the immoral practice of letting commissions earned by many distributors determine which mutual funds they recommended. Funds were sold based on the commission structures paid to distributors, not based on which funds were best suited for the investors.
The elephants in the mutual fund were happy to dance along to the tune of many distributors. Every time a fund was sold (or mis-sold) it meant a larger “total assets under management” for the industry – and more fees for the mutual fund house. And better salaries and bonuses for all in the system.
Now, the mutual fund industry is in new territory, not because the giants chose to take the side of the good and right (in fact, they fought it) but because the regulator put a stop to the rot. The days of the symbiotic relationship between the elephants and the distributors are over.
From August 1st the mutual fund industry has to learn to focus on what is good for the investor. A new playing field for those not used to it. So many in the mutual fund industry stand at the gate, nervous and anxious.
However, there is already an AMC, Quantum Mutual Funds which does not pay commissions to any distributors because they were alarmed at the scope for mis-selling in the industry.
More power to these guys.
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this will lead to greater transparency in mutual fund business.
in fact , one great advantage to the distributor/agent is that he can build his credibility among his clients by providing valuable advice regarding their investments and decisions.
Satisfied investors will be willing to pay more than what they would have paid under the normal commission scheme…
dear all,
welcome!!
no one talks about commisions plus incentives in life insurance.
kindly compare 2.25% to 40%.
life agents 2 nd year itself 6%