In what will be a boost to the cash flows of distributors, mutual fund houses are increasingly paying trail commissions on a monthly basis. Distributors have welcomed this move, especially at a time when most mutual fund advisory and sales businesses are starved for cash.

“This is one of the good things to have happened in the industry. The monthly trail commissions will help the business as it will boost our cash flows,” said Mr K K Hegde, an independent financial advisor.

The trail fee was earlier paid on a quarterly basis, but the move now is to make it a monthly payment. However, some fund houses claim to have already been paying the fee on a monthly basis. Many at fund houses currently making quarterly payments said this will force them to follow suit as well.

Trail fee is the amount paid by the asset management company to the distributors for the funds that they are able to mobilise. The trail fee varies based on the type of scheme. Equity funds command a trail fee of around 0.5 percent in general, while debt funds command a lower trail fee.

However, there are some advisors who do not consider it a “radical change” from the cash flow perspective. While they agree that this would bring in the cash monthly, the amount is proportionately less in value. Some of the fund houses which, according to distributors, have started paying on a monthly basis include Taurus, HDFC, Franklin Templeton, Reliance and DSP Blackrock. However, except for Taurus mutual fund, none of the other fund houses could be reached for comment.

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