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The Association of Mutual Funds in India (AMFI) has called a meeting of chief executives of all mutual funds on Wednesday to convince them to adhere to AMFI’s best practices on distributor commission.
Rejection, transgression In the past few months, the commission that fund houses pay to their distributors has come under regulatory scrutiny. Under the guidelines, the upfront commission has been capped at 100 basis points while trail commission (which the distributor earns through the lifetime of the investment) can be paid according to the type of asset, but within the total expense ratio limit. But a few fund houses have either openly rejected these guidelines or are covertly paying their distributors an extra incentive or paying a portion of the distributor’s service tax burden.
UK Sinha, Chairman, SEBI, reiterating its stance on Tuesday at a financial services conference, said if the mutual fund industry did not gradually move towards a lower cost model for investors, the regulator would be forced to intervene. A recent report by the Finance Ministry-appointed Sumit Bose Committee has recommended even lower commissions, which the industry wants to avoid. Hence, AMFI’s decision to convince members to at least adhere with the current guidelines.
Voluntary to mandatory Speaking to BusinessLine , CVR Rajendran, CEO, AMFI, said, “The guidelines were up till now voluntary, but the regulator now expects the industry to comply with it.
“The few deviations by some fund houses will be discussed at tomorrow’s meeting. This will enable the regulator also to go along with its long-term plans for the industry.”
SEBI had asked fund houses last week to declare whether they are complying with the AMFI guidelines or not.
Also likely is a discussion on voluntary withdrawal of the B15 incentive of 30 basis points — for mutual funds which take their distribution model beyond the top 15 cities — and the 20 bps additional charge allowed in lieu of the entry load.
On Tuesday SEBI said it will step in and decide on the commission structure for MF distributors if AMFI does not find a consensus.
Speaking on the sidelines of the CII’s 10th corporate governance summit in Mumbai on Tuesday, Sinha said, “We have given them a long rope and we are within our rights to tell them.”
Discussions are also underway to allow sale of MFs through e-commerce platforms.
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