Banks with their own AMCs minted money

Mutual fund houses shelled out Rs8533 crore as commission in FY18. Here's a detailed report

Banks with their own AMCs minted money

Banks are powerful financial institutions. When it comes to selling mutual funds, they are big influencers too. With the inherent advantages of customers coming to them, and ability to leverage the trust enjoyed on account of old banking relationships, banks sell MFs much more easily than any pure-play distributor, online platform, broker or independent financial advisor. This is why HDFC Bank, State Bank of India, Axis Bank, ICICI Bank, Kotak Mahindra Bank, Citibank and Standard Chartered Bank continue to remain among the top mutual fund distributors in terms commissions earned. In total, banks (as MF distributors) earned Rs 3480 crore as commissions in FY18 compared to Rs 1944 crore in FY17. In most cases, the bank turns out to be the biggest distributor of its own AMC as well. Read on to know more details.

Big banks, big bucks
FY18 had been a phenomenal year for most mutual fund distributors. Last year, the stock market rallied which helped attract robust inflows to the mutual fund industry. The Mutual Fund Sahi Hai campaign, which also took off during this period, added to the interest shown in mutual funds. This helped distributors make handsome commissions. In total, the top 979 MF distributors earned Rs 8533 crore as commissions. In FY17, 732 distributors earned Rs 5000 crore. AMFI discloses top MF distributors' commissions of a given fiscal year, after collating the data across fund houses.

Commissions earned by the top 10 distributors

Distributor FY18 (Rs Cr) FY17 Gain (%)
NJ Indiainvest 786.77 442.68 78
HDFC Bank 641.39 396.51 62
SBI 557.9 178.79 212
Axis Bank 537.71 248.53 116
ICICI Bank 470.28 279.68 68
ICICI Securities 316.53 172.58 83
Kotak Mahindra Bank 274.29 198.67 38
Citibank 248.96 185.02 35
Prudent Corporate Advisory Services 217.82 99.21 120
Standard Chartered Bank 185.42 119.53 55

Banks already have the largest number of entities among the top 10 MF distributors at an industry level. If the commissions earned by all MF distributors in FY18 rose by 70%, banks' commissions rose by 80%.

Also, the share of banks' commissions in the overall distributor pie grew. Banks, as MF distributors, earned Rs 3480 crore as commissions in FY18, compared to Rs 1944 crore in FY17. The Rs 3480 crore pocketed by banks in FY18 represents 41% share of all commissions, compared to 39% in FY17.

To each his own
In many cases, the bank turns out to be the biggest distributor of its own AMC as well. While there is nothing wrong with a bank being the biggest muscle in its own AMC's distributor network, this does raise an uncomfortable question: Are banks truly unbiased while distributing their own AMC's products? We may never know the truth, but data shows that most banks 'happen' to be the biggest distributor of their own AMC.

On one end, there's Union AMC, who paid Rs 17.44 crore (which is over 98% of the total commission paid) as commission to Union Bank of India. On the other end, there's Kotak AMC, which paid Rs 63.95 crore, or 15% of total commission pie (Rs 424.4 crore), to its biggest distributor Kotak Mahindra Bank.

Similarly, SBI AMC paid Rs 552.9 crore as commission to its biggest distributor SBI. In effect, the PSU bank earned 60% of all commissions i.e. Rs 928.9 crore paid by SBI AMC. Interestingly, SBI as an MF distributor earned 99% of all its MF distributor commission income from its own AMC.

Commission earned by bank as percentage of total AMC commission (FY18)

AMC Bank Commission (%)
Principal Pnb Punjab National Bank 21
Union Union Bank of India 98
Canara Robeco Canara Bank 45
ICICI Prudential ICICI Bank 26
SBI State Bank of India 60
Kotak Mahindra Kotak Mahindra Bank 15
Axis Axis Bank 69

Others gain too
In 2017-18, the top MF distributor club was, like in the previous years, dominated by Surat-based NJ Indiainvest which garnered Rs 786.77 crore as commission. It saw a 78% jump, compared to Rs 442.68 crore earned in FY17.

It is quite interesting to see that a pure-play MF distributor is actually raking in more commission than some of the biggest banks. With every passing year, NJ Indiainvest is widening its lead over others. In FY17, NJ Indiainvest was less than Rs 50 crore ahead of next competitor HDFC Bank. In FY18, this gap grew to over Rs 140 crore.

Also, NJ Indiainvest as MF distributor seems to be making more money than the very AMCs it serves. For instance, NJ Indiainvest's Rs 786-odd crore MF commission income in FY18 is more than what many AMCs earned as total income in FY17. This list includes SBI Funds Management , which earned Rs 778 crore as revenue in FY17, and UTI AMC which earned Rs 757 crore as operational revenue in FY17. We compared with FY17 because FY18 numbers of these AMCs are not available yet.

At an individual or IFA level, all (except one) of the top 10 distributors earned more than Rs 5 crore in FY18. Here are the top 10.

Commission paid to individuals

Name FY18 (Rs Cr) FY17
Dhruv Lalit Mehta 8.73 7.01
Gaurav Ganpule 8.42 6.03
Ganesh Shridhar Shanbhag 7.42 3.69
Padam Singh Raj Purohit 6.82 5.37
Roopa Venkatkrishnan 6.62 4.57
Shivam Mehrotra 5.96 1.77
Hari Ghanashyam Kamat 5.93 3.21
Mukesh R Parikh 5.61 4.4
Navneet Kumar 5.08 2.54
Sadashiv Arvind Phene 4.95 3.27

In 2011, Sebi had directed individual asset management companies (AMCs) to disclose the total commission and expenses paid each year to their large distributors.

Mutual fund commission is a sum of two factors: upfront fee and trail fee. Interestingly, the majority of money earned from open-end funds is trail fee. The trail fee in equity, tax-saving and equity-hybrid schemes (except arbitrage schemes) is about 1% to 1.25% per annum. In debt schemes (excluding liquid funds), the trail fee is 0.15-0.75%. In closed-end funds, upfront commission is quite high, since there is no risk of investor money going away midway due to closed-end structure.

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