With commissions dipping, MF firms put new schemes on hold

MUMBAI: Fund houses have not been enthusiastic in launching new schemes despite record inflows into mutual funds (MF) this year.

As on June 30, the total assets under management in equity funds, or the total investments made by such funds, totaled ₹3.82 lakh crore, compared to ₹3.33 lakh crore last year.

However, in the period, only nine pure equity mutual fund schemes were launched, compared with 37 in the same period last year.

For the whole 2015, 60 equity schemes were launched.

Typically, in times of bullish trends, equity houses introduce new MF schemes to take advantage of the rising interest in capital market. According to industry veterans, falling upfront commissions, or the fees earned in selling MF schemes, is a major reason for the lack of new products .“The regulator capping distributor commissions has affected close-ended funds. Earlier for such funds, commissions were paid upfront, which can’t be paid now ,” said Nimesh Shah, MD and CEO, ICICI Prudential AMC, India’s largest fund house.

Earlier, MF companies paid distributors 3-4% of the investment amount as the first year commission; in some funds it was as high as 6%. So, if a person invests ₹1,000 in a mutual fund, ₹30-60 is paid to the distributor.

“Due to the restrictions the incentive is a lot less in terms of AMCs’ ability to push distributors to promote new fund launches,” said Srikanth Meenakshi, co-founder of fundsindia.com.

Market regulator Securities and Exchange Board of India (Sebi) toughened norms for mutual fund houses and had asked them to reduce upfront commissions last year.

The industry body Association of Mutual Funds of India (AMFI) has since capped it at 1%. The regulator has also told fund houses to merge similar nature schemes, to make investment decisions easier for investors. The rate of approvals has also reduced, unless a new scheme is significantly different from what a fund house already has.

So, if a fund house already has a large-cap equity fund, it may not get approval for a new scheme that has similar basket of stocks.

“The scope for launching a new fund, which does not clash with an existing fund is low ,” said A Balasubramanian, chief executive officer of Birla Sun Life AMC.

So, to cash in on the retail investor demand, fund houses are now increasing their marketing expenses on existing schemes that have yielded strong returns in the past.