AMCs are paying large distributors anywhere between Rs 50 lakh and Rs 2 crore this year as part of the so-called marketing support fees. Last year, such payout was in the range of Rs 45 lakh to Rs 75 lakh. Fund houses said distributors, who have been deprived of the entry load after its ban since August 2009, are demanding a higher fee, citing difficulty in selling equity schemes in unfavourable market conditions. Get Details on Higher Returns on Fixed Deposit

The marketing support fee would depend on the size of the fund house and performance of the equity scheme, AMC officials said, "Fund houses with large asset bases, performing funds and good credentials will have to pay less. New and ailing fund houses will be required to pay higher fees," said the chief executive of mid-sized fund house "The benefit of paying additional fees is that bank distributors will strive harder to sell schemes of fund houses which have paid the money," he said.

The chief executive adds that bank distributors sell only those funds that are doing well. "They do not push products that are not in favour or are losing money. Bank distributors take turns to include topperforming schemes of fund houses (which pay extra money) in their quarterly fund recommendations," he said.

Most top bank distributors including HDFC, HSBC and Citibank, among others, have hiked marketing support charges this year, say mutual fund industry sources. But, the banks deny this. "We only accept upfront commission and trail from fund houses to sell funds. We're an open architecture distributor; we advise funds of almost all fund houses (to our clients), if they are performing well," said Abhay Aima, head of equities, private banking and third party products, HDFC Bank.

According to Aima, exclusive tieups are only done on the distribution side. "The fund house pays for marketing expenses. Under such tie-ups, we give them good shelf display, exclusive space for selling their funds, help them host investor melas and arrange campaigns. But at no cost, we take money to advise a particular fund," Aima added. A senior Citibank official, requesting anonymity, said, "We only collect upfront commission and trail fees from asset management companies. Citi sells funds of 21 fund houses. It has no exclusive tieups with any particular fund house."

Fund houses pay an upfront commission in the range of 0.75 - 1% and 50 - 75 bps as annual trail fees. Bank distributors are also promised an additional 25 bps trail (termed loyalty fees) if investors stay for more than five years.

An email query sent to HSBC did not elicit a response. According to industry sources, by accepting money for exclusive promotion and marketing support, bank distributors are already working on tied-agency concepts, which the recently constituted Sebi mutual fund panel is planning to introduce. Bank distributors have always been accused of resorting to aggressive portfolio churning by fund industry experts. Going by registrars' data, portfolio churning is high among investors who are serviced by bank-promoted distributors. Only 21% of equity AUM mobilised by banks remained with fund houses for more than 900 days vis-a-vis 53% collected by independent financial advisors.