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Thursday, August 06, 2009

India Post stops MF distribution

The ban on entry load on mutual funds (MFs) has struck its first blow to the asset management industry, with the government-run India Post stopping the distribution of MF schemes through its designated post offices.

India Post — a 'national distributor' in the real sense, thanks to its expansive distribution channel covering over 210 post offices — has informed mutual funds (with which India Post has exclusive tie-ups) that it will not sell schemes until there is clarity on distribution commission.

"We will not sell mutual funds until we get some clarity on entry load. We'll see how the issue unfolds over the next few weeks. The final decision will depend on how Sebi settles the issue without really hurting the distributor,"a senior official at India Post told ET.

A circular sent to the heads of concerned postal circles states that: "in view of Sebi guidelines, empowering investors through transparency in payment of commission and load structure which will come into force on August 1, it has been decided to suspend the retailing of MF products on all MF companies with effect from August 1."

But the department will distribute Franklin Templeton's Build India Fund as "it will get commission as per the existing terms (referring to the earlier commission structure) and conditions for retailing the NFO,"the circular added.

India Post sells schemes of Principal MF, SBI, UTI, Franklin Templeton and Reliance Mutual Fund through designated post offices in India.

According to the official, India Post has sold mutual fund schemes worth Rs 150 crore last fiscal. Ballpark estimates suggest that the postal behemoth would have earned anywhere between Rs 5 crore and Rs 10 crore on it, including upfront and trail commissions.

India Post started distributing mutual funds in 2001, first by signing an exclusive tie-up with IDBI-Principal. The India Post website says the department has stationed one AMFI qualified personnel at every designated post office to sell mutual funds.

"We've not yet received any official communication regarding it. But if it is true, the long-term impact is going to be very drastic. India Post — though not much of a big contributor to AUMs currently — has all that it takes to be a big rural distributor in future,"said the channel head of bank-promoted fund house.

India Post's decision to stop fund distribution stems from the recent Sebi ban on entry loads in mutual funds. According to the new rules, investors now have the freedom to directly negotiate on the fee that they pay for the services of distributors, or brokers, during the purchase of mutual fund schemes.


source: ET

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