IFAs accuse brokers of eyeing trail commission through MF dematerialisation

IFAs allege that the investor is unaware of the change of broker and claim that the ARN number changes after dematerialisation of MF units

As the assets under management (AUM) transfer business is gaining prominence, an increasing number of mutual fund (MF) distributors are questioning the authenticity of maintaining MF units in dematerialised (demat) form which ultimately leads to change of broker. Independent financial advisors (IFAs) allege that some brokerage firms change the AMFI registration number (ARN) keeping the investor in the dark, due to which IFAs stand to lose the trail commission.
“I highly doubt it. Most of the share brokers don’t have enough knowledge about mutual funds. It’s just another business where they want to expand. Some gullible investors don’t come to know about change of broker unlike high net-worth individuals (HNIs),” said a distributor.

To dematerialise an existing MF scheme, an investor has to open a demat account which is mandatory. Then he needs to attach all physical statements along with the conversion request form and submit it to Karvy, Computer Age Management Services Pvt Ltd (CAMS) or the asset management company (AMC).

“There are no charges for demat account opening. We would be charging not more than Rs300 per year. There is no brokerage for mutual funds. The ARN number would be the same. Your distributor would change only if you want to,” said the official in charge of the process from Nirmal Bang Securities Pvt Ltd, a brokerage firm.

“The ARN number does change. They never say that it’s a change of broker. Sharekhan has a form for the same which changes non-Sharekhan portfolios to Sharekhan folios,” said an IFA.

Nirmal Bang Securities is providing a free demat account. But the online investing platform for MFs increases the cost for the investor, considering the brokerage, account-opening and maintenance charges. Moneylife had earlier reported on how dematerialisation would be a costly option for investors. However, one advantage is that it can do away with the unnecessary paperwork (see here).
Although the demat form of Nirmal Bang nowhere mentions the change of ARN, MF distributors feel otherwise.

“The conversion request form is enough to change the ARN number,” said a Certified Financial Planner (CFP).

An official from a leading fund house says that the ARN number does not change, unless it is approved by the investor.

“There were some vacancies in Nirmal Bang Securities for its mutual funds division but nobody was ready to join them because of the brokerage image. They hire some people for six months and if the project doesn’t takes off, they sack them. Some time back, Reliance Money and Edelweiss MF also sacked people. This is all being done for trail commission,” adds the IFA.



V K Ganatra

7 years ago

Most of the investor are unaware that there are no demat a/c opening charges but they will have to pay annual maintainence charges which is Rs.75 to Rs.150 per quarter and banks's s charge much more.
with each debit credit there is charge of 0.04% or Rs.35 to Rs.50 per trancsaction.
If i use just my a/c statement to transact - i don;t have to pay any charges. and mutua fund statements are sent freee of charge by mutual fund co.whreeas DP charges Rs.50 for in between statements


7 years ago

SEBI had opened a pandora box and does not know how to close it. When they jumped to rid the financial world of IFAs, why they have kept silent about the trail fee. Does it accrue to the person who canvased for the investment or the Big guy (Brokers and Banks) who grabs the account on the sly?

No short-term clarity yet

Watch for a breakout either below 17,000 or above 17,200

The Sensex has once again been unable to cross 17,200 and we should wait for a firm move on either side for clarity as to where the index is headed in the short term. Watch out for a breakout either below 17,000 or above 17,200. 

On Monday, the Sensex closed at 17,164.99, 1.63 points from the previous close of 17,166.62.

On Friday, the Dow Jones Industrial Average was up 13 points while the Nasdaq and S&P 500 remained flat. During the day, except for the Jakarta Composite, Nikkei and NZX50, all Asian markets ended in the red. Markets in China and Taiwan were also sharply down. Among European markets, the CAC 40, DAX and FTSE opened down in the range of 0.03%-0.18%.

Among index heavyweights, Tata Consultancy Services (TCS) was up 2.27%. Malaysia Airlines and TCS have sealed a five-year contract for end-to-end IT infrastructure services. TCS also paid an advance tax of Rs178 crore, compared to Rs53 crore in the year-ago period. Infosys gained 1.07%. Its advance tax outgo has doubled to Rs250 crore from the Rs125 crore it paid in the year-ago period.

Godrej Consumer Products Ltd was up 1.13%, after the company announced the acquisition of Tura from Africa's Tura Group. Tura is a market leader in personal care, manufacturing and distributing of soaps, moisturising lotions and skin-toning creams.

During the day, Transport Corporation of India shot up almost 20% on the news that it plans to de-merge its real estate and warehousing division. Among the smaller stocks, 20 Microns rose 13.5% on the news that it plans to double plant capacity and spend Rs50 crore on capital expenditure.

Magma Fincorp Ltd was up 5.32% after the Board approved the issue of 20,00,000 warrants convertible into equity shares to the promoters and/or promoter group on a preferential basis. The ratio of conversion of warrants to fully-paid equity shares will be 1:1. The warrants are convertible into shares within a period of 18 months in one or more tranches at a price not less than Rs250 per share of Rs10 each.

Banking stocks fell on fears that the central bank may raise rates to tame inflation. India's largest bank by net profit and branch network State Bank of India (SBI) fell 1.45%. Its Q4 advance-tax payment rose to Rs1,857 crore from Rs1,810 crore a year earlier. SBI chairman OP Bhatt recently said that the bank was looking at tapping the retail bond market next year with a 10-year issue, although the initial issue size may be as small as Rs50 crore-Rs100 crore.

The shares of Hindustan Construction Co Ltd fell 2% after the company approved the acquisition of a controlling stake in Karl Steiner AG, the
second-largest operator in the Swiss real-estate market. The company will acquire 68% stake via issuance of new shares in consideration for a CHF 35 million cash investment in Karl Steiner. Karl Steiner will use these funds for its Swiss operations, and the growth of the company’s core business in India’s booming residential and commercial construction market.


Logjam in Babudom

The government wants to use e-governance as a tool for better administration. It needs to wake up to the fact that e-governance requires not only technology infrastructure, but also the human will to make it work

Recently, I visited a government office and was shocked to see the working conditions there. Forget facilities, there was not even a proper seating arrangement for the staff. Huge bundles of files were piled up on the shelves, threatening to crash anytime into the heads of passersby; tables and chairs were crammed like vehicles in a traffic jam and the computers looked like they belonged to some pre-Internet generation.

This last observation was the most depressing. While both the Central and State governments pay lip service to issues like e-governance, corporate governance and financial inclusion, the ground reality is starkly different. This particular office I visited deals with financial matters. The officer I met is supposed to handle around 5,000 cases every year. He is handling almost seven times more than that. Forget about skilled employees, there is no workforce even for routine jobs in the office.

Therefore, the officer has hired some outside people and is paying them from his pocket. After a scam was unearthed in this office, in which some employees and agents were arrested, all the remaining officials are playing it safe and are closely scrutinising each and every file, resulting in inordinate delays. The official is supposed to dispose of all the remaining cases (around 7,000) by March–end, but he is struggling to clear more than 150-200 files a day.

There are very few employees who know how to operate the department's software. Three big offices of the department, including the one I visited, have only one IT service engineer, who is clueless when the system fails. According to the employees, the engineer often spends the whole day resolving a minor problem, resulting in wasted overheads and loss of productivity.

This is not an isolated example of the rot of e-governance. Most government websites are dysfunctional and getting the information you want from them can be a daunting task. Take, for example, the website of the Maharashtra government (http://www.maharashtra.gov.in). Under the 'Departments' tab, you would expect to find a list of all the government departments. Nevertheless, it provides two links, namely, 'Mantralaya' and 'All Departments'. Stranger still, the 'Mantralaya' link provides a list of websites of some of the departments while the 'All Departments' link provides information about the State-run bodies under various departments. The 'Industries/Energy' tab provides links to MSEB Holding Co Ltd (MSEB), Directorate of Industries, Maharashtra Energy Development Agency (MEDA), etc. But to access information related to the Industries or Energy department or ministry, you will need to click the 'Mantralaya' link. What a mess!

The official website for booking rail tickets (IRCTC.co.in) remains unavailable for users who want to book tickets under the Tatkal quota, till 8.15am every day. They can access the site only after all the Tatkal tickets are booked by travel agents. "Naturally, this does not seem to be a system failure conveniently happening between 8.00am-8.15am. This cannot happen without the authorities being involved," says a user who posted his comments on the Moneylife website.

The IRCTC website is designed to disappoint users in many more ways. I recently booked two tickets for my parents, both senior citizens, through the site. I specified lower berths for both travellers, but to my surprise, they were issued upper berths (in fact, my mother was assigned an upper berth among the side berths). When I went to see them off, there was more surprise in store. All the berths, except those assigned to my parents, in that particular compartment were given to people whose names were on the waiting list. To avoid such situations, I now book my tickets physically at a railway counter instead of using the IRCTC website—which also charges me more for online booking.

The authorities need to wake up to the fact that e-governance requires not only the technology infrastructure, but also the human will to make it work. But that’s one lesson which our babus have shown scant inclination to learn.





7 years ago

It all bottoms down to the leadership of the department/organsiation. There is a vacuum at the top. Otherwise, with the budegetary resources and some really committed people, it is not an impossible task for reinventing the way our Govt departments work. That is why the entire process of IAS / Other staff recruitment of Govt. including quota policies need to be totally changed in sync with requirements.

Shadi Katyal

7 years ago

Why is this any surprise or shock to anyone. Govt has 60% more employees than a working office will need but Govt being the biggest employer thus creates vote banks. Is anyone in Center or even in States worried about work. what Work.
Look at Air India has 31000 employees and compared to Jet with same number of planes has 13000. Jet pays better salaries and yet we continue to recruit more for Air India,
take Banks and see how much work is done. No where in the world we have seen the wastage of time of clients also. When one deposits or wish to cash a cheque, one stands in one line and than a token is give to collect the funds on another window. why the person collecting your cheque cant give you the funds.It is just to create more jobs.
Govt of India burden of such salaries is so high that most of the funds which could provide even potable water are utilised to pay the salaries of non productive employees.World has moved away from paper to computers but Indian offices still survive on it.
There is joke going around that when someone needed help from some Babu and asked so Babu demanded money and when told is he not paid, Babu replied but that is to come here not to work.
Than we have Ministries which should not even exist but with coalition in the center every party wants a ministry and thus more Babus
More the Babus more the red Tape and more the delay in any project.
That is India. Chalta Hai Bhai

shibaji dash

7 years ago

You need a Chidambaram in every Minister-Centre or State- to select and nurture teams of dedicated officers to serve as radial centres in different parts of the country continuous for technological upgradation . Incometax Dept commenced computerisartion in eighties. But the quality and quantum leap was in the years 2001 to 2007. And the momentum continues. Incidentally, in the States, what about land bank formation. Phew !

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