There is a simmering discontent brewing among a large number of funds that are part of the Association of Mutual Funds in India (AMFI), with the way the industry lobby AMFI functions.
According to a chief executive of a mid-size and fast-growing fund, there is no unanimity among the players on what ought to constitute common operational policies. “The main reason for this is that AMFI is really being run by a small cabal of large funds who set the policies, but are the first to break the rule in their self-interest.” One example of this is the upfront commissions they had agreed to pay but undercut the same in the end.
Sometime in September, the Securities and Exchange Board of India (SEBI) had called some of these large funds and encouraged them to have a uniform first-year commission instead of the massive undercutting that was going on.
SEBI told the funds that it was concerned over the viability of the fund industry and suggested that some large players decide what the first-year commission would be and ensure that it is maintained by the rest of the industry.
The market regulator had a closed-door meeting with eight large players and gave them autonomy to decide on the pricing for the entire industry. It was AMFI’s job to ensure the uniformity. The eight fund houses decided that the commission would be 125 basis points.
AMFI issued a directive that all players should maintain this rate. The players gave their word and this 125 basis points commission was to be applicable from 1st October.
Amazingly, out of these eight funds, five funds had already released brokerages in excess of 125 bps the day before it was supposed to have come into force, making a mockery of the whole exercise, said a source from the fund industry. “I have written proof of this,” said the source, requesting anonymity, even as he shared the evidence with Moneylife.
There are also complaints that funds often get to know of major plans and decisions from the media before even the first formal discussion has taken place under the leadership of AMFI. A recent case in point is the discussion about mutual fund trading platforms in which AMFI was planning to take a 30% stake.
“We came to know of this major decision from registrar and transfer agents and a few large distributors, not from AMFI,” said the CEO of an Asset Management Company (AMC). He is lobbying the other funds to ensure that there is far greater transparency in AMFI’s functioning. But given the fact that such efforts have not borne fruit in the past, there is little chance of any significant change in the system. — Sanket Dhanorkar