Fund Sales Market Enters Discount Era

A “distribution revolution” is in order in the fund sales market.

The industry itself is taking initiative in seeking such changes, as it has been pointed out that the current fund commissions are too high despite the fact that fund products are so popular that about one in two households have bought them.

According to what was verified by the Dong-A Ilbo news reporters, Mirae Asset will introduce an Internet-exclusive fund with a total annual commission of less than 1% for the first time in the industry as early as next month. Currently, annual commissions for funds stand at somewhere between 2.1% and 2.5% of net assets (investment principal plus operating margins).

Kookmin Bank, the largest fund seller in Korea, is also planning to sharply cut sales commissions for its equity savings funds from the current 1.82% of the fund’s net assets by early next year.

The launch of Internet-exclusive products and a drop in sales commissions for equity savings funds mean that Internet shopping malls and discount stores are coming in the fund sales market.

“We will soon introduce an Internet-exclusive fund with an entire commission of less than 1%,” said Chairman Park Hyun-joo of Mirae Asset in a recent interview with Dong-A Ilbo.

“Our Internet-exclusive products will be confined to index funds that exactly reflect the ups and downs of stock indices. We will launch a ‘global index fund’ with which we will be investing not only in the domestic stock market, but also in Chinese and Indian markets,” added Park.

For all its equity savings funds, Kookmin Bank is considering introducing a “multi-class fund” method, where the bank receives the same sales commissions as those of other funds and significantly lowers the commissions after a certain period of time.

If Mirae Asset, which took up 35% of new capital inflows into equity funds this year, and Kookmin Bank, which sells 25% of savings funds, start slashing prices, other companies will have no choice but to follow suit. This is why it is widely expected that overall fund-related commissions will be considerably lower soon.

Im-Sook Ha artemes@donga.com