Sebi asks MFs to furnish distributor commission details

SEBI asks MFs to furnish distributor commission details August 24, 2010 02:48 PM Ravi Samalad

Source: http://www.moneylife.in/article/72/8479.html

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The regulator wants to make sure that fund houses are not distributing commissions from investors’ pockets
Market watchdog Securities and Exchange Board of India (SEBI) has once again turned the heat on mutual fund distributors. The regulator has sought details of commissions paid out to distributors over the last 10 months from asset management companies (AMCs). Some fund houses have already submitted this information to the regulator while others are in the process of doing so. According to industry sources, the regulator wants to ensure that AMCs are complying with SEBI's recent diktat which disallowed fund houses to disburse upfront commissions from the load account. AMCs had to comply with this rule from 1 April 2010.

"We are not paying commission from the load account. The problem is peculiar with fund houses which are in existence since the last 7-10 years. Their load accounts will be heavy. AMCs which have entered the business recently will neither have many schemes nor much money in their load accounts," said an official from a mid-sized fund house. Typically, it is Unit Trust of India that can pay a lot of money from its load accounts.

Equity schemes come with a lock-in period of one year while equity-linked saving schemes (ELSS) have a three-year lock-in period. If an investor exits the scheme before this lock-in period, the fund house charges 1% exit load. This money is stored in the load account and is utilised for investors' benefit. SEBI has been asking fund companies to carry out investor education programmes with this money.

There are variants of incentive structures like age-wise (tenure of investment holdings) and target-wise commission (among others) which are offered to intermediaries. Big fund houses that are ready to push their funds by going that extra mile are paying money from their own pockets. The distribution of schemes is carried out by filtering the top performing schemes. The schemes which have a consistent track record are pushed. Some industry players say that national distributors are only pushing schemes of a few fund houses which are ready to pay a handsome commission in return for sales.

Distributors are now paid 45 to 75 basis points (bps) trail commission depending on the fund house. Moneylife had earlier reported on how fund houses were offering upfront commission to the tune of 2%-3% under ELSS.
See: (http://www.moneylife.in/article/8/4440.html).