A Bank is a great place to make or receive payments. But if you are using the bank as a channel for your investments, then think about this in the short post here. Are You Getting Value for crores collected Banks?
Banks Mutual Fund Commissions are growing
Banks that have sponsored Mutual Fund companies (or AMCs) have collected Rs 800 crores as commission from their AMCs. This number has gone by by 83% over the last year. So if you are investing in Mutual Funds through your bank, pause and think – are you getting value?
If the bank is collecting more from its own sponsored funds then is there a conflict of interest? Are the employees of the bank incentivized to ‘sell more’ of their own Mutual Fund instead of offering the best of choice to their customers?
Here is some data:
| Name of the fund house | Commission paid to sponsor banks in FY 2016-2017 | Commission paid to sponsor banks in FY 2015-2016 | Change | Change% |
| ICICI Prudential | 192.52 | 103.39 | 89.14 | 86.22 |
| SBI | 175.46 | 60.64 | 114.82 | 189.34 |
| HDFC | 167.89 | 90.65 | 77.24 | 85.21 |
| Axis | 151.43 | 92.01 | 59.42 | 64.58 |
| Kotak Mahindra | 42.15 | 45.23 | -3.08 | -6.81 |
| HSBC | 18.46 | 16.82 | 1.64 | 9.78 |
| Canara Robeco | 16.54 | 10.52 | 6.03 | 57.34 |
| IDBI | 14.29 | 4.64 | 9.65 | 208.32 |
| Union | 8.07 | 5.56 | 2.52 | 45.36 |
| Baroda Pioneer | 6.73 | 3.48 | 3.25 | 93.51 |
| BOI AXA | 4.52 | 3.50 | 1.03 | 29.35 |
| Total | 798.09 | 436.43 | 361.67 | 82.9 |
How does a Bank make money?
Let us simplify the main sources of revenue for a bank.
- A bank makes money off the Current & Savings Account ( ‘CASA’) when you keep your money idle there (or earning a low 4%-5%). This ‘low cost’ deposit for the bank means that you are not getting your money’s worth. Instead, the bank is able to lend this to various people at rates as high as 11%-12% and make money on the spread.
- Your ‘Debt Habit’: You might be taking loans from a bank for a car, bike, personal vacation or something else. If you carefully notice, there is heavy advertising on loans to fuel consumption.
- Sell expensive and low returns products such as ULIPs: You could buy products that may not give you the best value. Various insurance + investment products are of this type.
- Distribute mutual funds with higher commissions: This is where you are losing 1% – 1.5% of your investment in commissions EVERY year. Over the long run (20 years) this means you could lose 40% of your wealth due to compounded commissions!
Conclusion – Why is this relevant for you?
This is important simply because you should be getting the best value for your money! You decide if of the four options above which one suits you the best. Quite clearly Direct Mutual Funds is the way to go and you must choose a platform that is easy to use, gives you good advice and provides great service.
