Committee, headed by RBI deputy governor, proposes reducing or abolishing agent’s commission on various schemes such as PPF, NSC
The finance ministry's committee on small savings has, in its recent report, recommended either reducing or completely abolishing the commission paid to agents on various schemes, saying that it adds to the overall cost of the schemes. This has aggrieved many agents who feel that the recommendations are 'unfair'.
The committee, chaired by Shyamala Gopinath, deputy governor of the Reserve Bank of India, has made its recommendations in the "Report of the Committee on Comprehensive Review of National Small Savings Fund" on the commission paid in the Standardised Agency System (SAS), Mahila Pradhan Kshetria Bachat Yojana (MPKBY) and Public Provident Fund Agents (PPFA). Agents are paid for these schemes from the National Small Savings Fund (NSSF) on the basis of gross small savings collections.
The committee says that under PPF, the commission should be abolished. Under PPF, 90% of the transactions are happening through banks, and for banks commission is not payable for any other scheme of theirs. The committee feels that 4% commission under MPKBY is very high and is affecting the viability of NSSF.
"The committee recognises that the RD (recurring deposits) scheme requires considerable effort on the part of agents in mobilising monthly deposits. However, 4% commission is distortionary and expensive. The committee recommends that this should be brought down to 1% in a phased manner in a period of three years, with a 1% reduction every year. Under SAS, while the commission for the senior citizen saving scheme is 0.5%, it is 1% on other schemes. The committee recommends that while commission should be abolished on the Senior Citizen Saving Scheme, on other schemes, it should be brought down to 0.5%."
According to the report, there are over five lakh small agents in the country. Over Rs2,000 crore is paid annually as commission to the agents of the small savings schemes. This, the report says, adds to the overall cost of the schemes and is "agent driven".
Industry experts have two views on this, even as the agents' are protesting. Experts feel that 4% is a high commission to be paid, but not paying anything is not the right approach.
It has recently been reported that UK Sinha, chief of the Securities and Exchange Board of India (SEBI), is planning to incentivise distributors in order to provide "organised and sustainable growth of the mutual fund industry". In August 2009, then SEBI chief, CB Bhave, had banned all entry loads on mutual fund schemes.
Mumbai-based PPF agent, Shrigopal Jhunjhunwala told Moneylife, "These recommendations are against the customers. They (government) think that the bank is providing PPF service, so agents are not required. This is a wrong perception. We make the customers understand about the scheme, new rules and regulations, take timely payments from them, deposit in banks, maintain their records. We earn just 1% anyways, which is for our service. Such recommendations will make agents give up their profession and eventually affect customers who are already confused about the schemes."
Mr Jhunjunwala says, "These recommendations will make PPF scheme the same as the New Pension Scheme, in which only a few people are investing."
Blog Galaxy of independent financial advisors says, "I feel that (there are) large number of fellows (who are) also engaged in distribution of small savings schemes (post office schemes - NSC, MIS, SCSS 2004, RD, etc.) The proposed changes will adversely affect the business models of all such fellows."
Snehal More, post office savings scheme agent from Mumbai, echoed the view. "This is unfair. People are themselves unaware of their investments. We get commission, but there is equal amount of hard work to earn this. We have to collect money on a monthly basis, track clients' maturity dates, and so on. Many people don't pay on time and at times we have to pay the defaults. Already, many agents are giving up because of such hassles. These recommendations will lead more agents to give up the work."
Currently, under SAS, there is a commission of 0.5% or 1% of the total collection on schemes like Kisan Vikas Patra, Post Office Monthly Income Scheme, Post Office Time Deposits, National Savings Certificates, National Savings Scheme and Senior Citizens Savings Scheme. In the case of PPF also the commission is 1%.
The report says that the revised estimate of such commissions paid out in 2010-11 was Rs2,400 crore. Mumbai-based agents have planned meetings to protest against the recommendations.
This open-ended fund of funds will invest in emerging market funds like Amundi, which has given good return over the past one year. But the long-term story is not encouraging
SBI Mutual Fund has filed an offer document with the Securities and Exchange Board of India (SEBI) to launch SBI Global Emerging Market Fund, an open-ended fund of funds. The primary investment objective of the scheme is to seek capital appreciation by investing predominantly in Emerging Market equity funds like Amundi Funds Emerging Internal Demand. The scheme may also invest a certain portion of its corpus in money market securities in India, in order to meet liquidity requirements from time to time. The new fund offer price is Rs10 per unit.
The scheme would invest 80% to 100% of assets in units/securities issued by overseas mutual funds investing in emerging market equity, with a medium- to high-risk profile. Up to 20% of assets will be invested in domestic debt and money market instruments with a low-risk profile, and up to 20% of assets in listed equity securities of emerging market countries with a medium- to high-risk profile.
Investors will have the choice of growth or dividend (payout) options.
The objective of Amundi Funds Emerging Internal Demand is to achieve long-term capital appreciation by investing at least two-thirds of the assets in equities and equity-linked instruments of companies in developing countries. Such investments can be made through P-Notes, in case of limited access to a stock market, or for the purpose of efficient portfolio management. The scheme performance will be benchmarked against the MSCI EM Index.
The one-year and three-year return of Amundi Funds Emerging Internal Demand is 19.90% and 3.14%, respectively. The return since inception is 0.80%. On the other hand, the one-year and three-year return of MSCI EM (emerging markets) is 21.44% and 3.02%, respectively, while its return since inception is 0.57%.
The entry load is nil, whereas a 1% exit load will be charged for exiting within a year from the date of allotment. The total recurring expense would be 2.5% per annum and the minimum application amount on the regular plan is Rs10,000 and in multiples of Rs1, thereafter.
The fund manager of the scheme is Anup Upadhyay, who has been with SBI Mutual Fund for the past four years. He has been an equity analyst in the technology, telecom and education sectors with SBI Mutual Fund since May 2007. He previously worked with Tata Consultancy Services for a year.
The timing is right, as the market is not that expensive
Daiwa Mutual Fund has filed an offer document with the Securities and Exchange Board of India (SEBI) seeking approval to launch Daiwa Equity Fund, an open-ended equity scheme. The investment objective of the scheme is to generate long-term capital growth by investing in a diversified portfolio of predominantly equity and equity-related securities.
The scheme proposes to invest 65% to 100% of the assets in equities and equity-related securities and up to 35% of assets would be invested in equity and equity-related instruments with a high-risk profile and up to 35% of assets in debt and money market instruments with a low- to medium-risk profile.
Under normal market conditions, the scheme would invest predominantly in a diversified portfolio constituting equity and equity-related instruments of companies which the fund manager believes have sustainable business models, and the potential for income and capital appreciation. The scheme may also invest in debt and money market instruments in a manner consistent with the investment objective. The benchmark for the scheme is BSE-200 index.
David Pezarkar is the fund manager of the scheme. His previous assignment was with Bajaj Allianz Life Insurance as head of equity. He has also been associated with SBI Funds Management and UTI Mutual Fund. The total recurring expense would be 2.50% per annum on the average net daily assets. This is a good time to launch a fund as the market is not expensive.