While the equity markets moved up in August, fresh sales in some of the mutual fund houses have fallen by up to 50 per cent following the abolition of the entry load.

However, the pall of gloom is likely to lift soon as distributors are working out new ways to protect their margins and AMCs are looking at compensating their distributors who manage to bring in long-term investors with higher trail commissions and upfront incentives. “Fresh sales in August fell sharply but we can not deduce a trend from here, we need to watch out for 2-3 months before coming to a conclusion. Of course there are challenges in the new environment and some advisors have also registered complaints since getting a fee for their services from the customer is not an easy thing but very soon the industry will be back on track,” said Reliance MF CEO Sandeep Sikka.

Though AMCs have worked out a model to compensate distributors by hiking trail commissions, fund houses are in a wait-and-watch mode. “The quantum of trail commission paid to distributors has gone up and they will receive a higher loyalty bonus if an investors stays with the fund for a year. The upfront commission paid by AMCs has also gone up by up to 1 per cent so distributors looking at forging long-term relationships with investors will not face difficulty in the future,” said Bonanza Portfolio's senior research analyst Dhiren Dhakan.

The upfront commission that AMCs will have to pay is, however, not going down well with some fund houses as they will have to provide this from their internal resources and by cutting other marketing expenses. Earlier the commission used to come from the investor who paid it as entry load. Now with no entry load and a curtailment of marketing expenses, fund houses will feel a pinch in paying the upfront commission, this would lead to AMCs promoting their well-established funds with good track records and cutting new launches, said an MF expert. “In the current regulatory framework it would be difficult to launch new products,” UTI chairman U K Sinha said on Wednesday. For the time being, both AMCs and distributors will have to live with lower margins but this can be made up with higher volumes, Sikka said.

... contd.