SEBI (Securities and Exchange Board of India) has warned mutual funds that it will take actions if they continue to disobey the approved guidelines on distributor commissions.
The Securities and Exchange Board of India may issue norms or standards to cap distributor fees as it wants to eliminate mis-selling of mutual fund products, told Ajay Tyagi, Chairman of the Capital Market Regulator, to mutual fund chief executives at a recent meeting, according to people with knowledge regarding the issue.
Earlier in 2015, AMFI (Association of Mutual Funds in India) issued a circular related to the best practices to be voluntarily followed by the mutual fund industries for distributor commissions.
SEBI has also already informally approved these AMFI’s norms to cap distributor fees. According to the norms, the upfront distributor fees will be at 1 percent, and will move based on a “trail-based commission model.” As per the model, the distributors will receive regular incentives until the investors hold their money with the MF.
Even though most of the MFs obeyed these guidelines, some mid-sized asset managers deviated from them. Most of the mutual fund houses started paying higher commissions because of the distributor demand due to huge inflows into MF schemes, violating the guidelines.
At present, MFs are paying distributors upfront fees of about 1.5 percent to 2 percent, which is higher than the 1 percent recommended by the Association of Mutual Funds in India.
The Securities and Exchange Board of India is displeased that MFs are not obeying the guidelines in spite of repeated reminders, according to a person familiar with the Market Regulator’s thinking, reported The Economic Times.
SEBI wanted the MFs to follow the AMFI’s circular strictly. In case, if the MF industry cannot obey the guidelines voluntarily, the Market Regulator will make it compulsory by framing rules, said the person, according to the source.[The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views and/or the official policy of the website. ]