With SEBI asking fund houses to do due diligence of distributors themselves, another problem has been created for the 500 odd distributors of mutual fund schemes.
SEBI had written a letter to all AMCs on November 17 asking them to take responsibility for due diligence of distributors. Those in the trade point out that the move is impractical.
“Why should distributors undergo the same due diligence process from 42 AMCs?” asked a VP — Distribution of a brokerage.
One AMC takes approximately two days to do due diligence of one distributor; at this rate, it will take 84 days for a distributor to be cleared by the 42 AMCs in existence.
There is fear among the smaller AMCs that big distributors may not sell their schemes as a result.
“It is only a matter of time when big distributors refuse to entertain smaller fund houses just to reduce the ordeal of being subjected to due diligence,” said a mutual fund analyst at a brokerage.
Industry watchers said that AMFI had already shortlisted three entities for doing distributor due diligence and the jury is still out on what happens to them if the SEBI diktat has to be adhered to.