But mutual funds are ‘product manufacturers’ who manage the money, why should they cry? The reason is simple: their 7-digit bonuses are dependent upon the distributor-based business model. It works something like this.

• Let’s say a fund launches an equity scheme and distributors deliver Rs 5,000 crore of investments. If it’s an NFO, distributors can walk with Rs 300 crore (6 per cent of assets); if it’s an existing scheme, they get Rs 112.5 crore (2.25 per cent).

• The fund gets to manage Rs 4,700-4,888 crore. On this sum, the fund, at an annual fee of 2 per cent on an average, gets around Rs 94-98 crore as income. On a net margin of say 30 per cent, the fund makes a net profit of Rs 28-29 crore.

• Anything between 1-5 per cent of that profit, with staggered break-ups, goes to the top management as bonus. In this case, between Rs 28 lakh and Rs 1.5 crore.

• Last year, the industry saw more than Rs 89,000 crore of equity schemes being sold, of which a little over Rs 22,000 crore came in as NFOs. Based on the assumptions above, the distributors took home about Rs 2,800 crore — Rs 1,500 crore from existing schemes and Rs 1,300 crore from NFOs.

• The Rs 89,000 crore of new funds the AMCs got to manage would have earned the industry Rs 1,780 crore of new money, 30 per cent of which would be Rs 530 crore, of which Rs 5-25 crore would have gone into the pockets of executives as bonus.

... contd.