The mutual fund industry especially the distribution side is going through a lot of turmoil. It is difficult, but not impossible for me to be totally unbiased, but the numbers look bad. Let us see for whom it looks bad.

At the top, we have 68000 odd distributors who are qualified to receive sales distribution income. Out of this about 58000 pay income tax. That means about 10,000 distributors are the only ones earning some significant income. And this at the gross stage – how much they earn after their expenses is anybody’s guess.

Typically the top 100 distributors earn about 90% of the income EVEN in this group! Amusing skewed data is it not?

There is one fund house which pays 1/10th of the fees that the other fund houses pay. I have no clue whether any IFA recommends this fund house. So a distributor who was earning Rs. 20,000 a month is suddenly told that he will earn Rs. 17,000 per month. I have not seen any mutual fund which is able to pay more than what they were paying a few months ago. So suddenly a poorly earning distributor is going to earn lesser.

What will this mean? Or what will be the implications?

The mutual fund distributor at the bottom of the chain will just disappear. Why would a person put in efforts to earn so little? So the guy at the very bottom will just disappear.

The guy who is slightly above the bottom will join a big distribution aggregator. The aggregator will be able to get a higher commission from the asset management company. They maybe willing to share it better with the smaller distributor.

The mid level distributor will reduce the number of asset management companies that he/she will deal with. Say there is a distributor who has Rs. 20 crores and has divided it equally (in practice it will not happen). He/she will now concentrate this among 4 amc so that it is a Rs 5 crores per amc. How will the distributor choose the amc?

1. brands which the clients choose
2. brands which have performance
3. brands which have decent service
4. brands which treat him/her well

so in real terms the IFA may not have too much of choice. However the amc which will suffer are those who are serviced by the smaller/lower end IFA.

How will a new AMC develop the market if they are not allowed to spend on distribution? well it amuses me no end.

The mid level IFA will reduce his own office expenses (so there maybe lower level unemployment in the industry). Amc will reduce the people in sales and sales support

What will happen to TER seems to be eating the regulator.

If you ask me, the regulator should be looking at the far more important things in the Mutual fund industry:

• risk in debt funds
• concentration risk
• unnecessary NFO
• using the new classification as an excuse for Nfo

I do think some of the IFA will increase the variety in their portfolio. So they will include insurance, travel loans, educational loans, etc.

So an IFA who earns 100% of his income from mutual funds, will go to 80%, then 50%…he has to reduce his dependence on mutual fund. Fair enough I guess.

How will a small distributor take a hit in his income and get everything back ended? Obviously the regulator does not have to answer this question. The Amc industry is the one who has to.

Look at the airline industry – the regulator did NOTHING – the changes were driven by the market.

I have seen people struggling with understanding the word ‘direct’. Many do not know the meaning. Well, well..