RETAIL FUNDS | Cesar Tordesillas, India

Indian banks found directing inflows to own mutual fund plans

Big Indian banks such as ICICI Bank and HDFC Bank direct 75-80% of all investments to their own mutual fund products.


This was the finding of Securities & Exchange Board of India, which also cited HSBC as the rare exception.

Most Indian banks that sell mutual fund products through their distribution channels claim they sell investment products of all asset management companies without any preference towards their own products.

"We follow a strict open architecture while distributing financial products. We may sell a lot of HDFC funds, but that's because these are large funds when compared to other funds in the industry; so volumes are bound to be high there. At one point, we were the second-largest distributor of ICICI Pru funds. Our list of recommendations includes top funds of several asset managing companies," said Abhay Aima, director, HDFC Securities, who was till recently heading the private banking for third-party products at HDFC Bank.

Fund houses team up with banks to take advantage of the latter's large sales network. By partnering with banks for distribution, mutual funds hoped to apply brakes on distributor-induced portfolio churning by investors.

Another factor that lured fund houses to banks was the lower commission rates, when compared to private fund sellers, charged by the banks. According to marketers, most banks are willing to distribute funds at lesser commission than pure MF distributors, say at 0.50-1%.

Also, most fund houses are tying up with banks to reach out to rural India to tap its huge potential, which can be best serviced by public sector banks since they have a large presence in smaller towns.

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