Upfront commission being granted for ELSS schemes

Fund houses are paying upfront brokerage of three years which includes trail commission to incentivise distributors for ELSS schemes

Fund houses are providing an advance lump-sum upfront brokerage for
equity-linked saving schemes (ELSS) in an attempt to woo distributors.

SBI Mutual Fund is giving an upfront brokerage of 2.25% for its Magnum Taxgain Fund which includes trail commission. No trail commission is paid for three years. Even Morgan Stanley is offering 2.5%-3% upfront commission for its diversified equity scheme, Morgan Stanley Growth Fund.
ELSS schemes usually have a lock-in period of three years. In the belief that an investor would stay invested in the fund for the entire period, fund houses are passing on the commission in advance.

According to industry sources, HDFC Mutual Fund is giving a three-year lump-sum commission of 3% upfront for its ELSS schemes.

“HDFC has two tax-saving schemes. When the entry load was banned by the Securities and Exchange Board of India (SEBI), HDFC was giving 1.75% upfront commission and for the other scheme they were giving 4% upfront commission but no trail commission for three years,” said a certified financial planner (CFP).

HDFC Mutual Fund declined to comment on the issue.

Sources say that the upfront commission spells good news for distributors but the flipside is that investors may start demanding rebate from distributors especially during March, when people rush to put money in ELSS schemes.

“The investor goes on a kickback shopping. Whoever gives the investor highest kickback, he will invest with him,” said an IFA.

“There will be no long-term loyalty with the customer. The new broker will not get any commission because it’s paid in advance in case of ARN change. SEBI officials say that rebating should not be given,” said a source.

If an investor opts to change his distributor, then the new distributor does not get the trail commission because it’s already paid in advance to the old distributor. Sometimes fund houses decide the terms of brokerage with the distributor.
An email query sent to Morgan Stanley remained unanswered.

  • Like this story? Get our top stories by email.

    User

    COMMENTS

    Aakash Bansal

    10 years ago

    Distributor is Dead, Long Live the Advisors

    sunil

    10 years ago

    They should just increase the Trial Fees and Get rid of all other commissions. Long Term Investors will stick on to funds and churn will be avoided.

    However, why isn't SEBI going after Insurance , especially ULIP agents ? There Lobby is too strong to break and IRDA the regulator itself is involved in it. God bless ULIP Investors.

    Debashis Basu

    10 years ago

    Thanks Mr Surana for correcting us. We have amended the article accordingly

    Alok Surana

    10 years ago

    Morgan Stanley do not have ELSS Fund

    Chandra Sekhar

    10 years ago

    Exit loads should be removed. If an investor comes out within one yr, what he pays exit load neither distributor gets benefit from this nor investor. If an investor wish to come out within one month, what he pays 1% is a huge amount, which he paid including on principal (on that day NAV) not on profit. If it annualised it will 12%. Exit loads should be removed. Pl take this issue to SEBI to abolish this. Rather entry load 1% will be OK... So that distributors will alive and industry will alive..

    S Narayan

    10 years ago

    It is very shocking that inspite of entry load ban by sebi mutual fund like hdfc is giving 3 to 4% commission to mutual fund agent.

    Air India defers March salary to 7th April

    The airline has deferred payment to its employees by a week to 7th April, instead of the usual practice of paying salaries within the month

    Facing a severe cash crunch, Air India has deferred payment of its March salary to employees by a week to 7th April, instead of the usual practice of paying it within the month, airline sources told PTI today.

    This is the second time in the recent past that the national carrier has had to defer salary payments. In June last year, it had postponed salaries by 15 days due to non-availability of funds.

    The cash crunch caused by the ongoing recession facing the aviation industry and other committed payments, including interest on the aircraft delivered, has led to the decision, these sources said.

    NACIL has been incurring losses since its inception with Rs2,226 crore loss in 2007-08 and about Rs5,500 crore loss in 2008-09.
     

  • Like this story? Get our top stories by email.

    User

    France & Germany agree on eurozone, IMF Greek bailout

    The two European powers are backing a joint eurozone and International Monetary Fund bailout programme for Greece

    Diplomats said today that after months of deep uncertainty and market turmoil, France and Germany are backing a joint eurozone and International Monetary Fund bailout programme for Greece—and other financially troubled members of Europe's currency union, reports PTI.

    They were speaking on conditions of anonymity because details have not been agreed upon by all 16 nations that use the euro.

    One diplomat said that France and Germany struck a deal “that precisely describes the conditions in which the euro-member states intervene” and “goes well beyond Greece.”

    Another diplomat said that an agreement could be announced later today at the EU leaders' summit after markets close. He said it would offer some €22 billion in aid for Greece, combining individual loans from the IMF and eurozone nations. No other officials mentioned an amount.

  • Like this story? Get our top stories by email.

    User

    COMMENTS

    Brian

    10 years ago

    The bankrupt bailing out the bankrupt! Euro will soon be worth nothing.

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone