While the US and Europe are expected to slog through a meagre 3% and 1.5% GDP growth this year, respectively, emerging Asia's GDP is set to surge 8% on an average in 2010 and 6% in 2011. Not surprisingly, the rebound will be led by China—slated to grow 10% in 2010—followed closely by India (8.5%), Taiwan (7%) and Vietnam (7.5%).
Templeton MF is insisting on a ‘clearance certificate’ from the previous distributor in order to pay trail commission to the new distributor
After the Securities and Exchange Board of India (SEBI)’s circular on payment of trail commissions, asset management companies (AMCs) are trying to play safe by insisting on a no-objection certificate (NOC) in case of a change of distributor. The mutual fund (MF) industry is still undecided on whether to pay the trail commission to the new distributor or the old one as the poaching game unfolds.
Moneylife has a document sent by Templeton to independent financial advisors (IFAs), which reads: “The payments of trail commission on assets that are transferred from another distributor to your ARN code shall be subject to us receiving a ‘Clearance Certificate’ from the previous distributor. In case any Assets under your ARN Code are transferred to another distributor at the request of the investor, you shall not be entitled to receive any trail commission on such assets.”
Therefore, Templeton is still insisting on receiving a clearance certificate from the old distributor in order to pay out trail commission.
The Association of Mutual Funds in India (AMFI) had instructed all asset management companies (AMCs) in its circular issued in September 2007 that investors can switch to a new distributor without obtaining an NOC from the existing distributor. However, most AMCs continued to demand an NOC from harried investors. Due to such inconsistent practises, SEBI stepped in to reiterate that all AMCs have to comply with the AMFI circular dated 5 September 2007 and not to insist on an NOC.
The whole issue stems from the growing business of assets under management (AUM) transfer. After the circulars from AMFI and SEBI on payment of trail commission, the AUM snatching game has begun to gain traction. According to industry sources, HDFC MF and UTI MF are not happy to pay trail commission to the new distributor though they have not come out with a formal announcement. Even AMFI took almost two years to implement its own decision on trail commission.
“Most of the AMCs are not insisting on an NOC especially after the SEBI circular,” said an IFA.
“The SEBI circular doesn’t say anything specific about the payment of trail commission. If an investor gives a letter that he wants to change his distributor, then the AMC should not ask for an NOC from the old broker. AMFI has said that an AMC may pay the brokerage to the new distributor subject to rules,” said other IFA.
Harshendu Bindal, president, Franklin Templeton Investments (India), said, “We have been processing all investor requests for a change in distributor without insisting on an NOC from the existing distributor, even before the SEBI circular, as part of AMFI best practices. Our understanding is that the SEBI guidelines are regarding the change of distributor code based on investor request and don’t pertain to payment of trail commission.”
“If the request for change of broker also asks for transfer of trail commission to the new broker we will change the broker code. However, given our contractual obligations with the distributors, we would ask for a consent letter from the old distributor for transferring the trail commission on historical assets. Irrespective of the type of request, we would accept a valid instruction from the investor for changing his broker code,” Mr Bindal added.
“I am not in favour of something which could prevent an investor from shifting to a new distributor. There are some malpractices in the industry where people are poaching on trail (commission). When an investor himself wants to be serviced through a distributor it is necessary that he compensates him indirectly,” said a chartered financial analyst.
“There is still some ambiguity in this case. Some AMCs have taken a stand that they will continue to pay the trail commission to the old distributor,” he added.
Small investors are nowhere involved with a say on trail commission as it is decided by the AMC and the agent. But industry sources say that some high net-worth individuals are beginning to bargain for a percentage of the trail commission from distributors. Whether an investor would easily get a clearance letter from the old distributor is another issue.
IOC is looking at equity partnership with companies like Saudi Aramco and Kuwait Petroleum, who can supply crude oil to the Paradip refinery project in Orissa which has an annual capacity of 15 million tonnes
State-owned Indian Oil Corp (IOC) on Wednesday said that it is looking at equity partnership with companies like Saudi Aramco and Kuwait Petroleum for its Rs29,777-crore Paradip refinery project in Orissa, reports PTI.
"Thinking (of inducting equity partners) is on. We are thinking of offering equity to someone who can bring synergy to the project," IOC chairman BM Bansal told reporters in New Delhi.
IOC is looking at companies which can supply crude oil to the 15 million tonnes a year refinery that is scheduled to be completed by March 2012.
Companies like Saudi Aramco, the world's largest crude oil producer, and Kuwait Petroleum Corp may fit into the scheme as oil suppliers to the project.
"So far, discussions have not taken place with anyone but we will like to begin them soon," he said. "Strategically, we wanted to offer equity (closer to project completion) at a premium, but if financial problems persist we will have to advance it," Mr Bansal added.
IOC wants someone who can commit long-term crude supply as equity partner. "But so far nothing concrete has happened," he said.
IOC had last year signed a loan agreement with a consortium of lenders led by State Bank of India for term loan of Rs14,900 crore for the project.
Mr Bansal said IOC is targeting commissioning of the refinery in the first quarter of 2012. The company had some time back split the refinery-cum-petrochemical complex into two, deciding to complete the refinery first and follow with the chemical unit.
The Paradip refinery is being configured to process the toughest, heaviest and the dirtiest crudes which are cheaper than the cleaner and easier varieties.
The refinery will have a Nelson Complexity Index of 15.