Domestic mutual fund houses do not anticipate much benefit from the new rules of the Insurance Regulatory and Development Authority (Irda), effective from tomorrow.
While there is a reduction in insurance agents' commission from an average 12-15 per cent to single digits, fund houses say the difference is still huge. An industry at a nascent stage, grappling with several regulatory issues, cannot grow unless distributors are incentivised properly, they say. They do not agree that Irda's actions would result in a major jump in sales of MF products. Ever since the Securities and Exchange Board of India (Sebi) put a ban on entry load in August 2009, MF distributors started shifting to selling more unit linked insurance products (Ulips) and other financial products. National distributors and banks managed to adjust in the changed business scenario but the independent financial advisors (IFAs) who cater to retail investors were the worst hit.
Some sales officials in the MF industry say there are expectations that insurance agents would prefer to bring MF products into their portfolio to make up their revenue losses to some extent, if not fully. "Remuneration is an important part of the business which stands true for the insurance sector, too. So far, insurance agents were working on a high-revenue model, which will no more be the case once new guidelines go effective. We believe that for those agents who are into the pure insurance business, MFs will also become important," said the chief marketing officer of a top MF house.
But industry players aren't optimistic on whether it would mean a push for MF products. "Though with cutting down of commissions, some parity has been brought. But a 7-9 per cent commission for insurance products is very high against virtually no commission for MF agents. It does not seem that such a step from Irda will be fruitful for MFs," said another sales head of a mid-sized asset management company.
At the maximum, we can give 1-1.25 per cent payout to our distributors from our own pockets, he adds. "Beyond which, it is not economical to run the business for long," he said.
According to a Mumbai-based large MF distributor, there is a certain section of intensely-driven agents who would opt for re-starting the sale of MF products. How far will it help the industry is a question mark, he added.
More, industry players said it was not that apart from insurance products only MFs were available. "There are a wide variety of financial products, which include fixed deposits and post office schemes which agents can cater to," said a sales head in the industry.
Source: http://www.business-standard.com/india/news/irda/s-new-rules-not-much-help-mfs/406522/
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