Mirae Asset Mutual Fund has slashed the commission it pays distributors to sell its products in an unprecedented move that has miffed these intermediaries. The fund house said the step is aimed at discouraging distributors to sell their products to reduce flows into its schemes mainly Midcap, Focused and Tax-Saving. Distributors claim the asset manager has cut fees only to boost its profitability. The drop in distributor commissions will however not reduce investors’ annual costs in Mirae’s schemes.
“There is not enough liquidity in the markets especially in the midcap space. We are worried about the pace of flows into these funds,” said Swarup Mohanty, CEO, Mirae Asset Mutual Fund. “The damage which higher inflows can do to a fund can go unnoticed.”
Mirae will now pay an annual trail commission of 60-70 basis points for fresh flows as against 120-140 basis points earlier. It has also asked distributors including banks and financial advisors to remove its schemes from the recommended list.
Distributors said they will not push Mirae schemes because of the commission cuts.
“Our commission is halved and so we will not sell these schemes but offer them to those who ask for it,” said a large Mumbai based mutual fund distributor on condition of anonymity. “Many investors themselves want to invest in Mirae given the strong performance of its equity schemes and we have no choice but to offer them these schemes.”
In the past, fund houses including Mirae and SBI have capped lumpsum flows or put restrictions on SIP investments to curtail flows into these funds. When the mid- and small-cap stocks run up, it becomes tough for funds to allocate fresh flows into them.
Industry officials said Mirae has antagonized the distributor community but the schemes’ superior performances have ensured steady inflows.
The fund house was amongst the handful in the industry that saw inflows into its equity schemes in the past eight months even most asset managers saw outflows. With the industry seeing flows coming back in March, Mirae feels flows into its equity schemes will accelerate, which could hit its scheme performance as fund managers have been finding it difficult to buy large quantity of midcap stocks as liquidity is poor and valuations are stretched.
The schemes in which Mirae has cut commissions for fresh money, are relative newcomers. Mirae Asset Midcap Fund, which was launched 21 months ago, manages assets worth Rs 4224 crore. It has returned 90% in the last one year. Mirae Asset Focused Fund, which will turn two in May, already has garnered assets of Rs 5472 crore and returned 79% in same period. Mirae Asset Tax Saver is a five year old scheme with assets of Rs 6934 crore and has returned 77%.
One of the best performing funds in the equity mutual fund space with a 10-year return of 21.5%, Mirae Asset Emerging Bluechip, a large and midcap oriented fund, stopped accepting lumpsum investments since October 2016. It now accepts only SIPs worth Rs 2500 a month from any individual investor.