Fight on for Fidelity's Rs 6,000-cr equity corpus
Fidelity Mutual Fund’s Rs 6,000-crore equity corpus is up for grabs. The fund house which was bought by L&T Finance on March 27, is attracting a lot of attention from distributors and asset management companies (AMCs).
According to industry officials, a number of distributors are advising their clients to shift money to schemes of other fund houses. Said a financial planner, “One of my clients was asked by an institutional distributor to shift his money to another fund house. And there are many such cases." The reason: Mutual fund houses have been starved of equity money. There have been consistent outflows. In FY12, fund houses have lost as much as 1.6 million equity folios. The average assets under management also stood at Rs 1.82 lakh crore vis-a-vis Rs 1.87 lakh crore in FY11.
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Also, according to the Securities and Exchange Board of India (Sebi) mandate, after a fund house buys out another, investors are given a one-month window to shift without any exit load. So, investors are advised to shift free of cost.
In fact, industry players say some fund houses are also offering additional commission of one to two per cent for shifting. Distributors agree the interest is for extra incentives. “Even if half of my client base redeems and gets into another scheme, I will earn in a big way. And, we have been successful to an extent," admitted an executive with a private bank. From among his investors, 50 have investments in Fidelity, and over 10 are working with the distributor to finalise another equity scheme. Industry officials say, even if 50 per cent of the corpus — Rs 3,000 crore — is shifted, there are chances of making commissions of Rs 30-60 crore.
“In fact, the distributors are negotiating with other fund houses on upfront commission to bring clients. Most want three to four per cent," said a fund manager. Many fund houses, especially the big ones, have the capability to pay this kind of commissions from their profits.
No wonder, distributors say there are special sittings with big-ticket clients to convince them to discontinue their investments as some are aware about regulatory norms. “It is for commission. The trick is in getting them to redeem at the earliest," says another distributor. Industry executives say the commission for mutual fund agents is a mix of upfront and trail. The upfront commission paid to distributors stands at 50-75 basis points. Trail commission is capped at 1.5 per cent, quarterly.
This apart, investors are required to pay a fee of Rs 100 for investments of Rs 10,000 and above, to be paid in four equal instalments and Rs 150 from first-time investors. Prior to 2009, the upfront commission used to be 1.2-1.5 per cent. Together with trail, distributors earned between two and three per cent.
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