in India (Amfi).
Earlier, the MF industry had set Rs 100 trillion as potential target by 2030, which included adding 400,000 new distributors.
However, current run-rate of additions underscores the challenges that lie ahead in achieving this mark.
“We have seen a whole host of regulatory changes, such as scrapping of upfront commission and rationalisation of total expense ratios (TERs), which also had some impact on trail commissions. Also, there has been a regulatory nudge towards fee-based advisory model,” said Sunil Subramanian, managing director of Sundaram MF.
Compared to last 11-month average additions of 725, March additions were down 14.7 per cent down at 618.
Further, asset erosion in the recent market sell-off has also taken a toll on the revenue stream of MF distributors. Equity assets have shrunk to Rs 5.78 trillion in March, eroding by Rs 1.79 trillion from February-levels.
“Distributors have seen their asset base shrink significantly due to fall in equity prices. This will hurt the trailing commissions,” said Srikanth Matrubai, chief executive officer of Sri Kavi Wealth.
Multiple domestic and global headwinds have kept market sentiments weak. "Since last three-four years, the economy has faced several headwinds from government-initiated structural reforms, US-China trade war, along with various crisis-like situations pretaining to NBFCs, Yes Bank and Karvy. Debt schemes have also witnessed markdowns due to rating downgrades. While SIP returns have remained weak, reduced commission payouts have left little incentive for new players to come in," said George Heber Joseph, chief executive officer and chief investment officer at ITI MF.
“Not many people are showing interest in coming into the business, as they don’t see the business offering adequate incentives. Also, several distributors are shifting to insurance business,” said Ritesh Sheth, co-founder of Tejas Consultancy.
Lack of upfront commission has also dissuaded individuals from entering the business. “Upfront commissions allowed new entrants to cover for their initial client acquisition costs. However, in absence of an initial income stream, it is difficult for players to absorb these costs,” said senior executive of a fund house.
Apart from individual distributors, there was also a 13 per cent decline in corporate employees. In FY20, new ARN registrations from corporate employees stood at 32,022, from 37,048 in previous fiscal.