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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.
 

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COMMENTS

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

Santhana

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.
 

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