Sundaram Mutual Fund said the Association of Mutual Funds in India’s move to restrict commission to 1 per cent is harsh on distributors. The company said the aggrieved distributors may appeal to the Competition Commission of India against the restrictions on the grounds that it encourages cartelisation.
The fund house has meanwhile decided against implementing the AMFI’s recommendations and has set out its own strategy to rein in mis-selling by distributors.
The fund house plans to cross-check the risk appetite of people investing in high-risk schemes by making phone calls on receiving applications.
‘SEBI’s concern valid’ Harsha Viji, Managing Director, Sundaram Mutual, said the concern of SEBI that high commission leads to mis-selling of products is valid, but the AMFI’s move to cut the commission is too harsh on distributors. This apart, he added, the AMFI’s suggestion on trailing commission cannot be practically implemented when the industry is dealing with so many small distributors who have to meet their daily expenses and pay monthly salaries to their employees.
“Though it is well intended, we do not want to follow the template on commission given by AMFI as it is a little drastic and open to legal challenge, which is worrying,” he added.
Claiming that the average commission paid in the MF industry is between 1.5 per cent and 2 per cent, he said, distributors in the US get a commission of 5 per cent while in the UK it is 4 per cent. In India, distributors of ULIPs get paid 15 per cent while a few corporates and NBFCs pay up to 3 per cent for raising deposits.
Trailing commission is the money paid to an advisor each year till such time an investor stays with his investment. The purpose of the fee is to provide an incentive to the advisor to review their customer’s holdings and provide advice.