Fidelity is planning to enter the Indian market within the “Super Distributor” segment.
Fidelity, one of the very big financial products and asset management companies of the world already owns Fundsnetwork, which currently covers a 1,000 funds of 55 fund management companies. The total value of assets under management for Fidelity AMC is more than 1. trillion dollars.
Now it is trying to revamp the Indian financial products market, or the mutual fund market, with a platform, which may not strictly be a distribution platform, but entails more than just asset management and one that would possibly make Fidelity, a super distributor of financial products.
How does it work?
There are these general distributors – who get the fund units directly from the AMC or asset management company, and they sell it to the investors for a commission. Suppose, a New Fund Offer, NFO, is planned by a AMC. XYZ distributor takes 10% of the fund unit from the AMC and attempts to sell it to common public. The AMC pays the distributor a commission for the mutual fund units sold by the distributor. So, there can be many regular distributors and AMC deals directly with them.
In case of a Super distributor, a financial product providers like AMC or fund management company pays the entire commission to the super distributor - which in turn deducts costs and its own fee and then passes the remaining commission to the regular or retail distributors or agents.
Hence, the super distributor not only earns from the AMC or fund management company, but also benefit from charging its network distributors.
As of now, there is only Reliance Money which is acting as a Super Distributor, that too partially. Fidelity, if gets successful in its plans, will be the first financial products company to be a super distributor.
What does this mean for the common investors?
On one hand, individual investors can expect a one-stop-shop for all kinds of financial products under one roof – like a financial super market. For regular distributors, each one ties up with a specific no. of AMCs. So one distributor may offer products from Morgan Stanley. But if you want to buy products from Goldman Sachs, you may not get it from the same distributor. You will be required to approach another agent.
Problem is that nothing comes free in this world. So the investors may expect more charges to be levied from them for buying financial products like mutual fund units from such super distributor chains. Remember, the more no. of entities involved in the supply-chain, the more cost it incurs to the end user. In case of financial supply chain network, the end user is the investor, who bears the entire cost.
On one hand, SEBI is trying to get rid of the entry load commissions , while on the other hand, such developments by big financial giants are indicating more costs for investments.
The financial services companies argue that in the long run, it will be beneficial for the investors, because in the long run, the prices will come down as is happening with the case of retail supermarkets being opened. However, the retail supermarkets and financial markets work on different patterns. One is consumer driven, other is commission driven. Despite knowing that investors hate to pay hefty commissions, no fund management company has reduced the commissions or charges so far.
Ultimately, the choice is left to the investors. Understand the costs and charges involved and make a right and justified selection. Or just go and pay the charges.
Please read the comments and post your views and queries in the comments section which helps in open discussion and avoids duplicity of questions.
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