“Fund houses are only cutting expense ratios in regular plans (which includes distributor commissions), but the expense ratios of direct plans have not come down in a similar fashion. This shows asset management companies are reluctant to take a cut in their fee income,” said Srikanth Matrubai, chief executive officer, SriKavi Wealth, a Bengaluru-based MF distributor.
Sebi also wants to find out whether the practice of sending distributors on sponsored trips to foreign and domestic locations is the reason behind these high expense ratios.
Industry players say most large fund houses hold contests every year where distributors who qualify are rewarded with junkets. Depending on the contribution they make to the business, the locations vary. For instance, one of the top fund houses is taking select distributors to Dubai next week, said sources.
In The spotlight
- Impact of sponsored distributor trips on total expense ratio (TER)
- Narrow discount between TER of regular and direct plans
- Distributors say fund houses not cutting expense ratios of direct plans
- A six-member sub-committee to review the structure in September
Deepak Parekh, chairman, HDFC MF, lauded the efforts of distributors in the growth of the MF industry recently, but also slammed the practice of rewarding distributors with sponsored trips. However, documents reviewed by Business Standard show there are no exceptions to this widely-followed practice. Parekh said that in many countries, this would be deemed illegal.
At the recent MF summit, Sebi Chairman Ajay Tyagi said, “We feel there is a scope to rationalise total expense ratios. We are reviewing the TER structure very closely.”
A six-member sub-committee formed by Sebi has been tasked to delve into these issues, when they meet to review the current TER structure in the first week of September. The sub-committee was formed following a recent Mutual Fund Advisory Committee meet.