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Friday, July 24, 2009

MF distributors explore alternative revenue models

Faced by the challenge of revenue losses due to removal of entry load from mutual funds, the distributors are contemplating alternative revenue models wherein the online platform has emerged as the top option.

From August 1, investors do not have to pay any entry load as per SEBI’s new regulation. However, it will result in revenue losses for distributors who used to get the entry load commission of 2.25 per cent.

Brokerages are trying to find out measures to compensate such losses. Distributors feel that increase of business volume along with reduction of cost should be the basic objective for such compensation.

Accordingly, they are concentrating on online trading platform, which saves costs to a large extent as it saves on papers and documentations and employee cost. One need not go to a customer’s residence to get MF forms filled as well.

Said Hitungshu Debnath, executive director – distribution & wealth management, Angel Broking: “we want to make the online platform popular in smaller cities, primarily targeting tech-savvy young to middle age groups who want to invest to secure their future. Though it is a time-consuming process, it is the only way out.”

While Angel Broking is planning to add more MF features to its existing online trading, Centrum is set to introduce online trading by October, primarily aimed at retail customers.

“We keep getting advisory fees of 1% on an average from our big-ticket clients. We expect to raise retail customer base with low ticket size by promoting online service,” said V Sriram, head – wealth management, Centrum Broking, who feels the need to educate customers of online MF buying and selling.

The aim is that once it becomes popular bringing big volume of customers, distributors will be able to impose a service charge of around 1 per cent to customers who also will not hesitate to pay seeing the hassle-free operations.

Besides online trading, distributors are negotiating with asset management companies to increase trail commission or any alternative commission that will bring some financial support. AMCs pay trail commission to distributors, depending on the duration for which an investor stays invested.

According to sources in touch with AMCs, the latter may increase exit load beyond 1 per cent and the extended part of exit load might go to the distributors.

“Market volume holds the key for us. That can only be made faster through online trading,” mentioned Rakesh Goyal, head – distribution, Bonanza Portfolio, who feels that removal of entry load has acted in their favour as now they do not face competition from IFAs for whose entry load was the source of income.

With 1,200 office locations, the brokerage is chalking out plans to multiply the base of retail customers through online trading.

Source: ET
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