The Securities and Exchange Board of India (Sebi) is likely to intervene in the upfront commission issue. The industry trade body, Association of Mutual funds in India (Amfi), recently sought guidance from the market regulator to ensure that the industry complies with the 1% cap on upfront commission.
UK Sinha, chairman of Sebi, on Monday confirmed that the regulator has received a letter from Amfi on the issue of commission. But he didn’t elaborate on how Sebi will deal with it. Sinha was speaking on the sidelines of the NSE India ETF Conference 2015.
Amfi had asked fund houses to cap the upfront commissions at 1% from April 1, 2015. However, a few small fund houses had criticised it for taking the decision without proper consensus.
Officials in the mutual fund industry said the market regulator might bring in some guidelines on the commission issue. At the CII Mutual Fund summit in June 2015, Sinha had criticised the mutual fund industry for not demonstrating self discipline on upfront commissions. “Nothing stops us from stepping in. But in my view, we should refrain from taking action unless it is warranted because when Sebi takes action into how much commission should be paid and not paid, it will be number one very harsh and impact large number of players and doing it away would be difficult,” Sinha had said.
In the past few days, a few fund houses asked Amfi to look into the issue of various fund houses giving more than 1% upfront commissions.
“We need a level playing field. Currently, many are adhering to the cap of 1% on upfront commissions, while there are few players who are clearly not following the Amfi’s guidelines. We hope that the regulator will come out with some norms that are followed by all the fund houses,” said a CEO on the condition of anonymity.
While the upfront commissions were capped at 1%, fund houses usually pay trail commissions in the range of 0.75 basis points (100 basis points = 1%) to 1.5%. Trail commissions are paid to distributors as long as investors are stayed invested into the scheme. But for now, the mutual fund industry will be keenly looking at some clarity from the regulator on the commission issue.
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