AMFI asks for a new vote on trail commission issue by email

The day after Moneylife exposed how the Association of Mutual Funds in India (AMFI) was dilly-dallying for over five months on whether trail commission would continue to be paid to the old distributor even after a customer has walked away, the fund lobby has decided to ask for a new vote on the issue. All chiefs of asset management companies got an email on Tuesday afternoon asking them to vote on three questions—whether the trail commission of a departing customer: a. should be paid to the old distributor; b. should be paid to the new distributor; c: should not be paid at all. Funds are supposed to vote a simple yes/no to each of the three questions.

It may be recalled that yesterday we had reported on the fact that there is continuing confusion about who gets the trail commission in a mutual fund transaction, where a client has moved away from one distributor to another. The confusion persists to this day, due to the inability of the fund lobby, AMFI, to implement the decision, by vote of hand, of its own members not to pay trail commission to the old distributor.

About five months ago, AMFI formed a committee with representatives from ICICI Prudential and Birla Sun Life to decide on who should be getting the trail commission. The committee argued that that the original trail should be there for life even if the client has shifted. There were major objections to this idea. In principle, trail commission is paid for maintenance of an account, not for acquisition. For acquisition of clients, fund companies were paying upfront commissions. If a distributor was not maintaining the account, there was no reason for him to get paid anymore.

The decision was debated and put to a hand of vote. It appeared that 11 funds voted in favour of the committee’s flawed decision while 17 were against. However, till date, this has not been implemented. Later, there was a lot of pressure on CEOs who voted for trail commission termination, to take back their vote.

Today’s email asks the funds to vote again on the idea. When Moneylife asked one of the CEOs why should AMFI ask its members to vote again on something that was roundly defeated, one of the CEOs replied, “It’s all a farce. I am not sure what AMFI wants to achieve and whether it will be implemented this time.” What is also a mystery is why are some funds so keen to keep paying commissions to the old distributor, which not only seems illogical but patently anti-investor. It is the investors’ money that is being paid out and it’s unjust to pay his money to a distributor he has decided to walk away from. However, this is precisely what some large funds are supporting

User

COMMENTS

Bansal NC

6 years ago

keep paying commissions to the old distributor

RUPESH

7 years ago

DEAR VIEWERS,
MUTUAL FUND BUSINESS HAS BECOME A HORSE TRADING BUSINESS JUST LIKE OUR PARLIAMENTARIANS R BEING SOLD IN BHED BAZAR OUTSIDE OF PARLIAMENT HOUSE-NOW IT IS ISSUE OF TRAIL COMMISSION-PLEASE NOTE-GIVING TRAIL COMMISSION OT NEW DISTRIBUTOR WILL JUST BENIFIT THOSE DISTRIBUTORS WHO CAN OFFER CASH INCENTIVES TO INVESTORS-IT IS JUST STARTING A NEW BRIBE SYSTEM-TO EARN FROM AUM-IS SEBI AWARE OF ALL THESE GROUND REALITIES? I GUESS SEBI OFFICIALS ARE TOO MUCH IDLE THESE DAYS-THATS Y THEY R MAKING NEW ''FATWAS'' EVERY DAY REGARDING MUTUAL FUND INDSUTRY-AS IF MUTUAL FUND INDUSTRY IS THE ONLY MATTER OF GREAT GREAT GREAT IMPORTANCE-WHY SEBI CANNOT ASK IRDA TO ACT ON FULL REMOVAL OF COMMISSION FROM INSURANCE?WHY SEBI CANT ASK REMOVAL OF COMMISSION PAID ON POST OFFICE SAVINGS? IT IS JUST DIRTY MINDS SITTING IN SEBI WHO ARE ONCY TRYING TO HARRASS POOR IFA'S WHO ARE NOT UNITED TO MAKE A SINGLE VOICE AGAINST ALL THSES ''FATWAS'' IT SEEMS IF IFA'S DONT UNITE-THEY WILL DIE ALONG WITH THEIR KIDS IN HUNGER-

raj

7 years ago

Dont expect any constructive action from AMFI in any matter . The association itself is farce. Look at what they did when SEBI took decision to abolish entry load. where was AMFI that time.Pleas e note there is no representative from MF Industry. you have to stay with what SEBI does. AMFI doesnt have guts to fight for industry. or else look at the brokers. how they are fighting against increase in timing

Bharatkumar J Patel,ahmedabad

7 years ago

I have strong objection to paying trial commission to new agent, one of the leading mutual fund distributor of guajrat got signed asset transfer letter under the disguise of changing bankdetails.when i contacted investr, he told me that he has not signed such paper for change of broker.lot of malpractice going on and it will make smaller agent vanish from the business if this continues.

S.K.Bagaria

7 years ago

I fail to understand the requirement of debate even on this issue. It need not be made an issue. Trail does not relates to the sale/deployment of fund but is revenue for servicing and maintaining the fund. Once the new advisor has entered , the responsibility of servicing and maintaining lies on him. he only need to be rewarded for that. Where the question of debate even?

v venkat

7 years ago

Idea of paying trail fees to new broker may be good but big mutual fund brokers like Prudent corporate advisory of surat,gujarat are pouching our big investor by offering inducement of trail,

Uday Dhoot

7 years ago

Totally agree with the view of the author here. Insurance companies started this wrong payment structure of trail to advisor, although most of the time the advisor vanishes after selling the insurance policy. Now mutual funds also want to go that way.

No doubt bigger guys just want to remain bigger even without doing any value add. I think not only in MF but in insurance also there should be a option to change the advisor.

Sensex gains 91 points, closes at 16,692

The Sensex closed at 16,692 as it gained 91 points from the previous day’s close, while the Nifty closed at 4,986, up 33 points on the back of strong global markets.

 

Reliance Industries Ltd (RIL) said today that it had made a gas discovery in one of its exploration blocks in the Krishna-Godavari basin off the country's eastern coast. RIL holds a 90% interest in the block, which covers an area of 3,288 sq km, and Hardy Exploration and Production (India) holds the rest. The stock remained flat.

 

Mahindra & Mahindra Financial Services jumped 2%, after the company said that Franklin Templeton Mutual Fund had hiked its stake in the company.

 

Sun TV Network rose 1%, after the company said that it will restructure its distribution business.

 

Golden Tobacco remained flat after the company’s board approved developing its property at Vile Parle, a Mumbai suburb.

 

Valiant Communications Ltd has formed a 100% wholly-owned subsidiary, Valiant Communications FZE, in the United Arab Emirates, to promote, market and provide pre- and post-sales support to customers of Valiant at the international level. The stock shot up 4%.

 

Aban Offshore Ltd’s wholly-owned subsidiary, Sinvest AS, has redeemed bonds having a principal amount aggregating to Norwegian kroner 1 billion (equivalent to Rs800 crore) along with accrued interest, on the due date of 22 December 2009. The stock was up 4%.

 

As per reports, corporate advance tax payments for the October-December 2009 quarter shot up sharply, suggesting a higher profit growth in the corporate sector in the third quarter (October-December) of the current fiscal, pointing to a firm broad-based economic recovery. Corporate advance tax payments for the quarter were up 44% to Rs48,300 crore against a 3.7% decline in the April-June quarter and a 14.7% increase in the July-September quarter.

 

During the day, the deputy head of the planning commission Montek Singh Ahluwalia said that the sharp surge in food prices reflects the impact of the drought and inefficient distribution, which could not be addressed by monetary policy. He said that while the increase in food prices was to some extent expected, it remained a concern. Food prices rose an annual 20% in early December—but they should decline in January 2010 as the stock situation is relatively stable. He further added that problems such as this cannot be tackled by blunt instruments like monetary policy.

 

“Price increase at the retail level is much more than the increase at the wholesale level which is because of dysfunctionality in the distribution system and the ministry is looking into it. But whenever required, we should import,” Mr Singh said.

 

Finance secretary Ashok Chawla announced that the government is likely to offer cash instead of bonds to State-run oil firms for compensating them for selling fuel at lower than market prices, as per media reports. However, no decision has been taken on the compensation amount.

 

During the day, Asia’s key benchmark indices in Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan rose by between 0.69%-1.91%. But China’s index fell 2.32% on concerns that more initial public offering subscriptions by the year-end could impact market liquidity.

 

On Monday, 21 December 2009, the Dow Jones Industrial Average was up 85 points while the S&P 500 and the Nasdaq Composite were up 12 points and 26 points respectively after a Bill to overhaul the US healthcare system, which is perceived as less damaging to industry profits than expected, passed a crucial test in the US Senate.

 

Meanwhile, rating agency Moody’s cut Greece’s debt to ‘A2’ from ‘A1’ over soaring deficits, becoming the third major rating agency to downgrade the highly-indebted country’s rating this month. Moody’s has kept Greece on a negative outlook. Its rating is still two notches above that of Fitch and S&P, which earlier this month cut their rating on the indebted country to ‘BBB+’, the euro area’s lowest level.

 

The UK economy shrank less than previously estimated in the third quarter as a jump in construction and fixed investments brought the longest recession on record closer to its end. According to the Office for National Statistics, UK’s gross domestic product (GDP) fell 0.2% from the second quarter, compared with a previous measurement of a 0.3% drop. The recession has now shaved 6% off GDP, the statistics office said.

 

The Confederation of British Industry raised its 2010 economic growth forecast and said that the Bank of England may pause its bond-purchase plan in February 2010. Meanwhile, policy-makers have pledged to print £200 billion of new money to stoke spending and shake off Britain’s longest recession on record.

 

In premarket trading, the Dow was trading 43 points higher.

 

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COMMENTS

manish

6 years ago

The Global Markets gives out mixed cues this morning. U.S. stocks fell; erasing the previous session’s advance, after a smaller-than forecast gain in personal incomes added to concern the economic rebound may slow further. European stocks closed little changed after three weeks of declines for the Stoxx Europe 600 Index as a resurgence of takeover activity offset a retreat in auto industry shares. This morning Asian stocks fell, poised for a third decline in four months, as slower-than estimated growth in personal incomes in the U.S. heightened concern the economic recovery may slow and the yen strengthened. In commodities, Oil declined for a second day as slower-than-forecast growth in U.S. personal incomes added to concern that the pace of economic recovery in the world’s largest crude user may falter. Gold is set for the biggest monthly advance since April as signs that the global economic recovery may be faltering prompt investors to boost their holdings to try to preserve their wealth. Copper climbed to the highest price in four months on speculation that demand will rise as governments worldwide pledged to boost growth. The Indian markets trade on negative note this morning. Most of the sectoral indices trade in red this morning. FMCG and Healthcare indices trade flat in green. The main draggers are Oil & Gas, Realty and Metal indices declining more than one percentage points. Market breadth is negative with 754 advances against 1,833 declines. The Sensex trades in red at 17,908.90 declining 123.21 points or 0.68 percentage points. Nifty trades at 5379.05 declining by 36.40 points or 0.69 percentage points.

Rising promoter stake lead to better results, higher stocks

Where promoters have increased their stake, the growth has been excellent leading to higher share price

Continuously rising stake by promoters can lead to an early signal of improving fundamentals and of course, a sharp rise in stock prices. A recent study by Moneylife found that promoters of 71 companies out of the 1,328 companies from our database have increased their stakes in the last four consecutive quarters.
It’s unusual to see promoters’ holding increase on a regular basis. They usually step in to buy after a sharp market decline to shore up their holdings. They don’t continuously increase their stake, quarter after quarter in a rising market. If they did, it would not only indicate their confidence about their companies but also show that they are very bullish indeed. This is exactly what has happened. As the Moneylife study found out, rising promoter holding was an early indicator of financial performance and stock price performance.

Promoters’ stake has increased the most in Linc Pen & Plastic, by 41% in the December 2008 quarter to the September 2009 quarter. Its operating profit has grown 164% and the stock has surged 119% in the same period. Promoters of JBF Industries (24%), Hexaware Technologies (22%), Genus Power Infrastructures (14%) also were a very confident lot. These companies have performed very well at the operating level and their stock has been in the investor’s radar over this time period. JBF Industries posted a strong operating profit growth of 50% and its stock soared 230%. Hexaware recorded a 533% rise in operating profit from a low base of last year and its stock rallied 284% in the same period. Genus Power Infrastructures also posted a strong performance as its operating profit grew by 36% and stock rose by 69%. All these companies have recorded significant growth in profit and therefore in share prices.

Promoters in the pharmaceutical sector were especially upbeat. Their holding in eight drug companies increased in each of the past four quarters. Companies like Suven Life Sciences, Shasun Chemicals & Drugs and FDC Limited were some of the pharma stocks that attracted investors’ interest because of their operating profit growth. Shasun, Suven and FDC posted a rise in their operating profit by 549%, 178% and 162% respectively. These three stocks gained 145%, 87% and 50% respectively.

Auto components was another sector where promoters were bullish where Banco Products (India), Autolite (India) and Ramkrishna Forgings posted a rise in operating profit of 205%, 155% and 133% respectively. These three stocks gained 115%, 58% and 128% respectively. Despite the general feeling that the textile companies were in the dumps, many of the spinning companies have been doing well and not surprisingly, promoter activity was intense in many textile companies too. In six companies, there has been a rise in the stake in each of the past four quarters. Nahar Spinning Mills and Eurotex Industries & Exports posted a growth of 492% and 433% in operating profit. Their stock prices grew by 140% and 110% respectively. So, next time, you see promoters increasing their stakes in successive quarters, you know that the financial performance is going to be good and the stock prices would possibly be higher.

User

COMMENTS

Mahesh

7 years ago

Suven Life Sciences is a True Multibagger.

Ashit Kothi

7 years ago

Can you pls provide the list by mail or in your article.

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