Mutual Fund Commissions: Foreign banks lead once again, other top distributors lag behind
Moneylife Digital Team 12 July 2012

Seven banks were among the top 10 list of highest mutual fund commissions earned with HongKong Bank, HDFC Bank, Citibank and Standard Chartered leading the pack

Banks lead the list in terms of highest commissions earned. The top five banks with the highest commission earned were Hongkong & Shanghai Banking Corporation (HSBC) with Rs153.98 crore, HDFC Bank and Citibank earned a commission of Rs130 crore each, Standard Chartered Bank and Axis Bank followed with commissions of Rs84.53 crore and Rs59.25 crore respectively, according to data released by Association of Mutual Funds in India (AMFI). Few banks have earned a significant part of their commission from the fund companies of the same group. The commissions earned by the banks compared to the previous year have gone up significantly. However, for top non-bank distributors the numbers are not too encouraging.
 

The commissions paid out to 403 distributors in FY10-11 amounted to Rs1,770 crore, however, the commission paid out to just 269 distributors (that operated from more than 20 locations) in FY11-12 was as much as Rs1,859 crore. The total commissions earned by the top 10 banks increased by around 20%, whereas that of top 10 non-bank distributors increased by just 2% compared to the previous financial year. The commissions of HSBC grew by nearly 30%, whereas NJ India Invest, which is one of the top non-bank distributors, the commissions grew by a paltry 3.85%. Other top distributors, in terms of commission earned like JM Financial Services, Bajaj Capital, Aditya Birla Money Mart and Karvy Stock Broking earned lower commissions compared to what they earned in the pervious year.

In the list of 269 distributors, the top 25 distributors take around 70% of the total commissions earned. Out of these 25 distributors, 12 are banks which take a share of more than 60% of the commissions.
 

Most of the commissions earned by the banks are from the fund house of the same group. State Bank of India earned a commission of Rs30.76 crore, of which 91% or Rs28.06 crore came from SBI Mutual Fund. In the same way, Axis Bank earned 59% of its Rs59.24 crore commissions from Axis Mutual Fund and 36% of the commissions earned by HDFC Bank came from HDFC Mutual Fund.

This is something Moneylife had pointed out last year too when the commissions earned were disclosed. Bankers command enormous reach and trust among their customers compared to distributors. All banking processes are geared to maximise sales and profits and this leads to hard selling of products by the so-called “relationship managers (RMs)”.

Not only this, banks have a readymade database of their clients’ personal details and their financial situation, unlike other distributors. Armed with such information it is easy for them to cross-sell financial products such as mutual funds and insurance. This is a means for them to push sales and earn higher commissions. But this selling usually does not take the customer’s interest into account. It is purely driven by commission. Moneylife has covered many such cases in the past.

 

 

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