Mutual Funds
Mutual fund regulations: Who contributes the most to equity inflows is overlooked

Independent financial advisors contribute the most to new equity fund inflows especially from beyond 15 cities. Yet the regulator chooses to ignore this ‘small’ distributor community by coming up with regulations that harms their business

Around 77% of the total equity assets under management come from the top 15 cities, according to CAMS MFDEx data (accounts for 91% of industry). In the top 15 cities most of the fund inflows come from independent financial advisors (IFAs), national distributors, and private banks; each of them contributing around 27% to 29% of the total fund inflows from the top 15 cities. From beyond 15 cities, IFAs’ contribute the highest share amounting to 55% of the total fund inflows. Direct investors contribute just 5% to the total assets in both the categories. On consolidating the data, IFAs have contributed the highest to the total equity fund inflows for the period from April 2012 to September 2012. IFAs brought in 33% of the total equity fund inflows followed by private banks and national distributors which brought in 26% and 23% respectively. Other distributor categories brought in less than 6% each. But yet the regulator ignores these facts coming up with regulations that go against the distributor fraternity and impacts the industry as a whole.

Here is why we feel the Securities and Exchange Board of India (SEBI) has a history of coming up with half-baked ideas. In August 2009, when SEBI banned entry load, the worst affected were the IFAs. With their commissions taking a hit many IFAs went out of business. Three years later, in order to increase penetration, SEBI allows fund houses to hike TER (total expense ratio). Our analysis has shown that a hike in TER stands to benefit the fund house the most and the earlier entry load worked out to be a better option for long-term investors. (Read: Much-maligned entry load was a cheaper option!) Instead of incentivizing the channel that has the highest penetration in beyond 15 cities, the regulator has done just the opposite by striking a blow at their business and introducing a direct plan.

The IFA community has also written a memorandum to be sent to AMFI and SEBI against the introduction of the direct share class. They mention that the abolition of entry load brought a major blow to the IFA community and that their income shrunk by three-fourths of what it used to be. This led to a huge exodus of IFAs from the industry. A number of active ARN holders shrunk drastically post-August 2009 directive. The proposed regulation of introducing direct share class and offering lower TER for direct investors would result in devastating effects for the IFA community. Their existing high net worth clients would shift to the direct route and would result in a loss of revenue for them. “With dwindling revenue, an IFA would find it difficult to remain afloat and soon abandon the business” they mention in the memorandum.

Though, at present, direct investors contribute the lowest to new equity inflows, it would be interesting to see whether the SEBI’s new plan would be able to increase the contribution of inflows from the direct route. A lot depends on the magnitude by which the TER of the scheme is reduced. Fund houses knowing that their distributor community contributes the maximum may not reduce the TER to an extent that it would cause investors to switch to the direct plan.

To read other research done by Moneylife on mutual funds, click here.

The direct route would be beneficial in the long run for investors but then that too would come at a cost. Direct investors may find it difficult to keep up with the various changes in regulations and documentation process without an advisor. There are various servicing activities like change of address, change of bank mandate, consolidation of folios, transmission of funds, inclusion of nominee, handholding on minor investments, arranging for periodical statement of accounts, correction of mistakes in the account, change in KYC, change in contact information, etc that are carried out by IFAs for their clients. Direct investors would have to do all of it by themselves.


Sales contribution from



National Distributors

PSU Banks

Other banks

Regional Distributors


Top 15








Beyond 15




















4 years ago

It was a great mistake to abolish entry load. It is given to understand that churning was the reason which prompted such action but it was ill conceived and half thought action. Leave aside financial products and think of anything other than the spiritual or social services given by a few holy souls in this world what is given free and who works for somebody without expecting remuneration by whatever name? Why should the public servants get salary? Further as in any other field free advice/service is available in every field from our friends, neighbours, relatives and social servants. They could have done this work also for the public. It was absurd to think that only mutual funds schemes should be sold without paying any commission to the agent and all other products, services may it be financial or otherwise can be sold with any amount of commission without any knowledge to the buyer. What is the situation in medical, education field? Who else declares the profits he earn by selling anything? Only 3/4% money is invested in equiry or equity related products. Why this sudden love towards these 3/4% investors developed leaving balance 96% of consumers of various products and services to the mercy of manufacturers, sellers and those things? Banks are in business for last more than 50-60 years and have branches everywhere in India. Everyone knows bank and who wants an account opens it. Everything is direct. Still RBI has formulated and allowed banks to create channels like Business Facilitators and Banking Correspondents paying fee/commission to them. From where this commission come, ultimately from the customer's account. This is contradictory. Why we can not find a person, organization or govt. body which can think about this disparity. Ok, if you want it to make direct and without any kind of payment on account of commission etc. to anyone make it in post office, life and general insurance, banking, RBI bonds, all private schemes and also make compulsory for all manufactures of pin to aeroplane to print amount of profit earned by manufacturer, distributor, retailer etc. on the bill. At least they should learn from the experience of PFRDA.

Suiketu Shah

4 years ago


MF is fine provided the agent provides positive service and adv to the client.Most agents fool customers into MF9there are 500 of them) into those where they get higher commission even at higher NAV etc.This is why most investors decide to play safe with FDeposits.If one needs to be in equity,shares is not so difficult with wonderful research by companies like moneylife.Im afraid to say MF is a dying industry thanks to the patheticallt agents(majority of them ,not all) who make more money than the customer.We strongly agree to disagree.



In Reply to Suiketu Shah 4 years ago


Investing is an act of faith. Mutual funds are not for those, who are not willing to put their ‘trust’ along with their money into mutual funds. However, those who have reposed unflinching trust in mutual funds and held on to them steadfastly through thick and thin have done well for themselves.

Mr. Shah, request you to ‘also’ read another article on moneylife titled “Indian retail investors tend to lose in the stock markets”.

Indian MF industry is on the death bed, not because there is something inherently wrong with the nature of MF industry. – But, because it has been brutally damaged from outside.

I am hopeful, you shall reconcile. The sooner you do, it shall be profitable for you. There is no compulsion to invest in mutual funds though.


4 years ago

As a mutual funds distributor please allow me to First and foremost say a BIG thank you to The Moneylife Team. Thank you MDT for the empathy.

This is perhaps the only article in the past four years, which has not listed us as some kind of crooks and whatnot. . . I can’t thank you enough for treating us, mf distributors with basic courtesy and respect for once.

To say that the past 3 -4 years have been tough would be an understatement. Yet the powers that be, do not want to define how much commission is fair and adequate for mobilizing money into mutual funds.
– But, How is it okay to offer more compensation for mobilization from Tier2 cities. It is rotten idea, not a half-baked one,

A mutual funds investor who follows asset allocation can NORMALLY expect to double his investment in 4 – 6 years time. In this period the agent use to get between 1% - 2.25% as a onetime upfront commission + 0.5% on annualized basis till the investment is alive. – Anyone who says this arrangement is unfair needs to undergo a mental check up.
If this upfront commission is deducted by the AMC from the investment amount and paid to the agent. What is wrong? Where is the problem? Why is it allowed to happen in Life Insurance & General Insurance?

Some intellectuals claim entry load is anti-investor. How can entry load be anti – investor?
Rather than penalizing the wrong doers they chose to strike at the entry load and positioned entry load as anti-investor.

Just consider the bad press we, as mutual funds distributors have been receiving from those very guys who have been merrily collecting advertisement revenue from speakasia and also a foreign bank charged for criminal offence and money laundering in the USA. Worst the mis-selling of some now gets glorified as ‘sharp selling’.

Economy & Nation Exclusive
Indian steel producers are being 'forced' to import iron ore

For the first time in history, Indian steel companies are forced to import iron ore as domestic production has almost come to a halt, courtesy the Shah Commission report

In an irony, several steel/pig iron producers from India, which is the third-largest exporter of iron-ore, are increasingly looking to import the main raw ingredient. Main reason is that the steel makers are finding it difficult to procure iron ore, especially following complete ban on mining in Goa and lingering restrictions on mining in Karnataka and Odisha. This is forcing them to import iron ore from other countries, when India has one of the largest reserves of iron ore.


The steel industry across the world is in doldrums due to decline in demand, especially from China. India was one of the major exporters of iron ore to China. However, due to steps taken by the authorities to clean up the mining sector, and slump in demand, domestic steel producers are being forced to procure raw materials from abroad.


Several overseas miners, like Brazilian Vale, BHP Billiton and Rio Tinto Group are looking to increase shipping to India. In July, Vale, the world's largest producer of iron ore, shipped 3 lakh tonnes of pellets to India, the first such instance in past several years.


“We believe iron ore lump shortage will be significant in the next two to three years. Given the lump shortage, we expect significant pellet/lump imports in the next two to three years. Signs of such activity are already visible. We expect the trend to gain strength in the next two to three years until new pellet capacities are commissioned," said Standard Chartered Equity Research in a note.

Incidentally, about 90% of NMDC’s recent lump ore e-auction was reportedly unsold as Indian steel mills resorted to capacity cuts due to lower profitability. During 2011-12, iron ore production in India was 169.66 million (provisional) as against estimated consumption of around 116.3 million tonnes by domestic iron and steel industry.


According to a report from Reuters, India's role switch is one reason for a rebound in iron ore prices, which this year fell below $87 a tonne, their lowest since 2009 due to China's slowing economic growth. India's iron ore exports to China fell to less than 300,000 tonnes in October—the lowest in at least two decades—after the ban in Goa. That followed a mining ban in Karnataka in 2011, after shipments there were halted a year earlier, the report says.


While the present iron ore production in the country is in excess of total estimated consumption, domestic steel producers are finding it difficult to procure it with ease. According to reports, steel and pig iron producer such as Essar Steel and Sesa Goa are increasing looking to import iron ore. JSW Steel is also procuring iron ore through e-auction at higher costs.


Earlier, Essar Steel's chief executive Dilip Oommen told DowJones that iron ore imports will be a significant portion of the total iron ore supplies in the current fiscal. “Iron-ore prices globally are quite conducive for imports, and we have already started importing shipments,” Mr Oommen has been quoted as saying by Dow Jones Newswires.


The Federation of Indian Mineral Industries (FIMI) estimates India’s iron ore exports in FY13 at 40 million tonnes (compared with 55 million tonnes exported in FY12) citing non-renewal or non-issuance of mining leases as one of the main reasons.

Meanwhile, Indian steel mills have continued to cut prices on the back of continued sluggish demand, rising inventory and a fall in raw material (coking coal) prices. Flat product demand has remained particularly subdued.


For the week ended 24th November, long product prices declined 0.9% on a week-on-week (WoW) basis to Rs34,500 per tonne, while sponge prices decreased 3.2% to Rs21,000 per tonne on WoW. Hot Rolled Coil (HRC) Mumbai prices (import parity) increased on currency depreciation and uptick in international prices although imports have become uneconomical as domestic prices at Rs33,500 per tonne are at much lower levels due to poor domestic demand.


Globally, during the week, steel prices were mixed, declining in China (down 0.6% WoW) and Turkey (down 3.5% WoW), while continuing to increase in North America (up 1.6% WoW) with some uptick in North Europe (up 1.1% WoW).

The Justice MB Shah Commission, appointed by the Union government to probe illegal mining in Goa, has reported a Rs35,000 crore fraud in the state. Even the Supreme Court, hearing a public interest litigation (PIL) filed by social activist-turned-politician Prashant Bhushan, has banned mining in Goa until a Central Powered Committee completes a probe. Since 5th October, mining in Goa has come to a standstill, with the state chief minister Manohar Parrikar clearing stating that mining would not be restarted till the apex court decides to.




4 years ago

I am afraid, it may not be proper to accuse the Shah Commission report for this situation without inquiring as to why there is a compulsion to import ore from abroad. I am afraid, it is too genealist an approach to blame the commission's report.

Bikram Duggal

4 years ago

I don't think that we should pay inordinate attention to the rising iron ore prices etc. The issue that needs to be understood here is that for the long term benefit of the country it is important that we should clamp down till we have transparent mechanisms in place for the iron mining sector to ensure that the public wealth is not looted on a/c of policies made behind closed doors by politicians who cannot think beyond the next election (that is doubt full as well sometimes)..

Shadi Katyal

4 years ago

This is India where left hand doesn't know what right is doing and we talk of becoming an industrial nation.One wonders where are the dreams of millions to find jobs,education and health while in 6 decades we are unable to provide potable water.
It seems at times that India is still being run as a colony and such reports show the lack of knowledge of what an industrial nation requires???
Would we always be enslaved by such rules>????

Uptrend on BSE Sensex, Nifty still intact: Friday Closing Report

Previous day’s low has to be watched out for a reversal in trend


The market brushed aside the lower GDP numbers and closed in the green for the fourth day in a row. Once again, the Nifty made a higher high and higher low today. The low of 5,828 is the highest since 26 April 2011. We continue to see the uptrend remaining firm, however, the previous day’s low has to be watched out for a reversal in trend. The National Stock Exchange (NSE) saw a volume of 126.39 crore shares and an advance decline ratio of 1123:671.


Continuing its upmove, the Indian market opened higher on signs of an improvement in the economy, as pointed out by global agencies Moody’s and Goldman Sachs this week, and positive global trends. However, local investors were cautious ahead of the GDP (gross domestic product) numbers for the September quarter.


The Nifty opened 11 points higher at 5,836 and the Sensex started off at 19,230, up 59 points over its previous close. Buying in metal, capita goods and realty sectors led the market in early trade.


However, the benchmarks soon pared their gains on nervousness about the economic growth data. The declined saw the indices touching their intraday lows at around 10.45am. At the lows, the Nifty fell to 5,828 and the Sensex retracted to 19,186.


Meanwhile, the Indian economy grew by 5.3% in the July-September period of the current fiscal compared to 6.7% in the same period of the last fiscal. GDP in the first quarter of FY 2013 stood at 5.5%.


The September quarter GDP numbers coming in line with analysts’ expectations once again pushed the market higher. The market climbed to its high in noon trade with support from metal, power, PSU and oil and gas sectors. The gains helped the indices hit their highs wherein the Nifty touched 5,875 and the Sensex rose to 19,346.


Profit booking after the indices hit their highs saw the market paring a small part of its gains, but it ended in the green for the fourth straight day. The Nifty gained 55 points (0.94%) to settle at 5,880 and the Sensex closed the session at 19,340, up 169 points (0.88%).


Among the broader indices, the BSE Mid-cap index climbed 1.10% and the BSE Small-cap index advanced 0.82%.


The top performers in the sectoral space were BSE Metal (up 2.07%); BSE Power (up 1.77%); BSE PSU (up 1.70%); BSE Bankex (up 1.46%) and BSE Consumer Durables (up 1.40%). The laggards were BSE Auto (down 0.32%); BSE Fast Moving Consumer Goods (down 0.24%) and BSE Realty (down 0.20%).


Twenty three of the 30 stocks on the Sensex closed in the positive. The main gainers were Jindal Steel (up 5.39%); BHEL (up 4.92%); ONGC (up 4.44%); Sterlite Industries (up 3.24%) and Hindalco Industries (up 2.65%). The main losers were Hindustan Unilever (down 1.72%); Tata Motors (down 1.44%); Bajaj Auto (down 1.13%); Maruti Suzuki (down 0.93%) and Coal India (down 0.80%).


The top two A Group gainers on the BSE were—Indiabulls Financial Services (up 10.61%) and Suzlon Energy (up 8.80%).

The top two A Group losers on the BSE were—Apollo Hospitals Enterprise (down 7.95%) and NHPC (down 3.64%).


The top two B Group gainers on the BSE were—UltraTech Cement (up 7.91%) and Bayer CropScience (up 5.91%).

The top two B Group losers on the BSE were—Zee Entertainment (down 3.58%) and Container Corporation of India (down 3.03%).


Out of the 50 stocks listed on the Nifty, 40 stocks settled in the positive. The major gainers were UltraTech Cement (up 5.49%); Jindal Steel (up 5.47%); BHEL (up 5.33%); ONGC (up 4.41%) and IDFC (up 3.32%). The key losers were Ranbaxy Laboratories (down 1.73%); HUL (down 1.66%); Tata Motors (down 1.31%); Maruti Suzuki (down 1.24%) and Bajaj Auto (down 0.89%).


Markets in Asia closed mostly higher on optimism that US lawmakers will clinch a budget deal and news that the Japanese Cabinet approved a second round of stimulus worth 880 billion yen ($10.7 billion), ahead of next month’s elections.


The Shanghai Composite surged 0.85%; the Hang Seng gained 0.49%; the KLSE Composite rose 0.22%; the Nikkei 225 advanced 0.48%; the Straits Times climbed 0.79% and the Taiwan Weighted surged 1.02%. On the other hand, the Jakarta Composite declined 0.99% and the Seoul Composite lost 0.10%.


At the time of writing, key markets in Europe were trading with minor gains and the US stock futures were marginally higher.


Back home, foreign institutional investors were net buyers of shares totalling Rs1,579.97 crore on Thursday while domestic institutional investors were net sellers of stocks totalling Rs896.22 crore.


Thermax has won a Rs 503-crore EPC (engineering, procurement and construction) order from a NMDC to set up a captive power plant for its new three million tonne per annum integrated steel plant in central India. The order also includes a water de-mineraliser plant, cooling water system and ventilation systems. Thermax declined 1.43% to close at Rs584 on the NSE.


State-run power sector lender Rural Electrification Corporation (REC) today said its public issue of tax-free bonds aimed at raising up to Rs4,500 crore will open for subscription on 3rd December and will close on 10th December. The proceeds will be utilised for normal lending operations in the power sector and infrastructure projects to augment resource base of the company. The stock gained 0.70% to close at Rs230.65 on the NSE.


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