Prajna Capital - An Investment Guide

IN A move that is expected to create a flutter among mutual fund distributors, HDFC Mutual Fund has asked its distributors to refund a part of the brokerage they received for selling fixed maturity plans, as a result of premature redemptions. HDFC MF — the country’s second-largest mutual fund in terms of assets under management — has decided to invoke a clause in its agreement with distributors, which mentioned that in the event of investors pulling out before the maturity period, brokers would have to refund the brokerage proportionate to the ‘unexpired period’. What this means is that distributors are paid the entire brokerage upfront, assuming that the investor will stay invested in the FMP through its maturity. If an FMP had a maturity period of one year, and the investor withdrew from the scheme after nine months, the broker will now have to refund the brokerage for three months. Understandably, some of the HDFC Mutual Fund’s distributors who have been slapped with this dem...