We are most harrased n discouraged service professionals. very few sectors or we are the only people reeling under financial crisis.the matter should be paid very very due consideration.

The seperate treatment of service Tax and TER will solve the problem of Expenses being debited to Direct and Regular Plan.Brokerage and Service Tax thereon will be debited only to regular plan and Direct will not be affected. Further TER being allowed is against consideration of evaluated cost of servicing to investor and is under the perview of Regulator. If govt wants tax on those services , that needs to be charged to end consumer and the regulator has nothing to do in this. Once GST becomes operative this service Tax may be in the range of 18 to 24 % .

TER and Service tax are two different things. It should not be mixed. TER is proragative of SEBI to decide the maximum expenditure to be debited to Fund. Service tax is being levied by Givernment and to be borne of end consumer. Considering the impact of service Tax on Fund SEBI may re evaluate the TER but Service Tax, on any/all part of expenses being debited to Fund, need to be debited to fund only. Service Tax being govt levy subject to change in every budget should be kept seperate and provision should be for debiting the same to Fund in addition to TER.

Service tax being a form of indirect tax , it shall be borne by the consumer of the service.That said , it shall be borne by the AMC partly and the reminder by the investor.In order to split these components its high time that SEBI segregates the distribution fee and the advisory fee from the overall commission. That way , it can fairly be charged to the respective heads.This also ensures that the direct plan and regular plan will have right parity. The only solution to this problem is to segregate distribution incentive , and advisory incentive.

HIGH 5 to you Vijay Venkatram of Wealth Forum as a Thought Leader on this simple issue which can be resolved and your opinion and direction to ensure that the Distibutors are not hurt on this Service Tax. On our Income from Distribution 14% goes as Service Tax, 30% goes as Income Tax and from the net amount, when we spend about 30 % goes as various Indirect Taxes. We have to Live , Save and Invest for our Retirement with the balance 25 % . All this without any social security support .

Thanks for detailed presentation. SEBI wont hike TER and do not want to burden investors to absorb the service tax. AMC says that Fund Houses have no ability to bear the tax. Ultimately they are passing the burden on IFAs. Govt. is not bothered about the source from where the money comes. Nobody is concerned about the plight of an IFA. IF YOU DONT FIGHT FOR WHAT YOU WANT, DONT CRY FOR WHAT YOU LOST. BE A FIGHTER.

The point that the service provider must pay the tax is itself illogical. If the investor pays service tax for other investments, how can SEBI quote the logic of investor interest versus the interest of the national exchequer ? Even in direct plans, the investor is serviced by the AMC, be it printing forms, customer service, separate internet options, etc. so service tax must be levied on direct plans as well. As far as the differential between direct and regular NAVs is concerned, it is a classic case of conflict of interest with AMFI, because most costs associated with servicing direct transactions are not accounted at all, just passed on to the regular scheme investors.

If Segregation doesn’t happen, the practice of increasing the gap between direct and regular using higher commissions to some may be adopted by the remaining fund houses too as the market condition improves and throw a majority of the IFAs out of business through such manipulative practices. Hope everyone agrees that around 1% gap between direct and regular that may arise in only trail(at least fund houses will pay us 1% and show that as gap then) is far better than 2% gap in upfront + Trail. Segregation also makes sure that our commissions can not be changed every month, every quarter etc., and we will get a certain minimum commission too.

If Segregation of a transaction only distributor and advisor at remuneration level happens,Service tax can be charged to NAV as is the case with Management Fee. Also, when segregation happens a fund house that is paying 0.75% trail can not show the gap as 2.0% for the simple reason that “Significantly Higher commissions paid to transaction only distributors either through upfront or through Trail ” which currently are being used as a tool to increase the gap will be ineffective.

The huge variation of differences between Direct and Regular for similar schemes having similar AUMs across fund houses i.e. gaps ranging from 0.6 % to more than 2.0% is indicative of the lack of standardization of reporting of expenses and probably indicates the manipulation of expense ratios to suit the business strategies of fund houses.

Mr. Vijay has presented the subject very logically. Unfortunately in India the rules are implemented without looking into the ethics associated with the subject matter. This critical issue should have been addressed right in the begining before implementing and discussing at length the pros and cons. However as many of our friends explained, the onus of the payment of service tax should be on customers like other industries. Finally the issue has to be addressed amicably with out hurting the concerned.

Yes, direct plan is a bigger problem. In future if more and more IFAs go off, will the fund industry grow ? No. AMCs are hoping to sell through net but there will be nobody to give the first push. And nobody will be there to ask them to remain invested through a bad patch.

The service tax which was deducted prior to 2012 by AMCs was also ilegitimte and even that must be refunded along with punitive actions on AMCs.

The poor distributor is already on the backfoot. The differential in the NAV between DIRECT and REGULAR as stated will only get wider and we will find it very difficult to convince clients.The solution has to be provided by the AMCS as how to protect the interest of both investor and distributor.

what is rubbish that not to charge service tax to investor.who is ultimate beneficiary of scheme? Answer is Investor.& who is SEBI to decide not to increase TER ? AMC should fight with SEBI & categorically clear them Investor should bear the service tax. Increase the TER. yet India is developing country.dont compare with other country expense charges etc. why Distributor should suffer? we are intermediary not beneficiary of product or services.AMFI is weak body among other financial product organisation like IRDA etc.

It can only happen in mutual fund industry wherein service tax on one set of service provider AMC) is passed on to investor while service tax on another set of servvice provider (Distributor) is to be born by them. Also other participant in securities market like stock brokers, depository participant pass on the service tax on the ultimate consumer i.e. investor.

Well appreciated of very detailed and presenting all facts about service tax matter. Clearly both SEBI & AMCs need to appreciate, sensitize the situation and must consider All Distributors views, inputs before taking a final decision.

Thanks for putting up all the facts and Remedies for this thorny issue. I very much agree that ultimately the Customer/Investor will have to bear the service tax cost, which he/she does bear in ANY other goods purchased. Also very much agree with Mr.Chitnis and Devendra.

Thank you Vijay, as usual you have put all point of views very succinctly. Core issue however is developing sustainable business model for new and small IFAs, so that new people are attracted towards this profession. In seminars we keep on hearing of need of increasing active adviser numbers from 10,000 to 100,000 but when remuneration is not enough for them (I am NOT talking about established successful IFAs) , how is it going to happen?

Service Tax being an indirect tax is intended to be collected from the ultimate consumer of the product or service and the same is being followed by the manufacturers of the goods and the service providers including insurance products. There is no point in targeting either the distributors or the manufacturers(mutual funds) in this case. In case SEBI feels that the consumers should not be burdened with additional tax, they should represent to the Govt to scrap it or reduce the rate. Please note that the distributors also invest in Mutual funds and they cannot be taxed twice for it. If there is a stalemate judicial process is to be initiated.

i take my own personnel account where in i feel dejected as a small time ifa i got peanuts not even covering our petrol expenses leave about having a cup of tea. first on sips rap was cut off, then service tax was cut off, now upfront commission is cut off. bear body is left. is it worth for inducting more number of ifas. even you do 10 c the amount required for a family to depend on this sustenance is suicidal. while the distributors , amcs pay huge salaries to the employees, and also bear their transport, cell phone bills, poor ifas have to bear all the expenses and still feel left out with paltry net after deducting the St. Saner sense should prevail for those whose annual income less than 5.0 laks should not be levied any tax other than IT. it is time some body takes initiative as to how many are earning between 1000 pm to 10.lac per annum commission. the case was not properly presented to the concerned authorities for reasons being obivious.

Please look at a scenario if MF agent due to low earnings cannot afford to approach a small investor. The same small investor will be approached by an insurance agent and poor investor will buy a insurance policy and end up paying at least 7 % to agents impacting his overall returns. So why are we paranoid on 2.5% expense ratio. Is the industry concern with super rich only and least bothered by huge population. Solution - let super rich investor invest only in PMS and SEBI should focus on superior regulation their. This will also allow average population to get better return on their investments. Lastly so called HNI investors are also buying mediclaim and motor / life insurance, Is he not paying 14% service charge their ? What say ?

Every one knows with increase in volume cost comes down. We also take example of US and other developed countries. But rarely we look - 1. that in US 401k account is mandatory which invests in to markets 2. MFs own/promotes bank & insurance companies in developed world. 3. Why Size or %age of MFs in investment pie in the country is so low. And for this small pie their are hell of the regulations making life extremely complicated for even investors.