SEBI asks MFs to furnish distributor commission details
Ravi Samalad 24 August 2010

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).

Comments
shankar
1 decade ago
I think Mr Bhave is taking out some personal enimity with the IFAs.Firstly he banned the entry load and now he is not satisfied with that.He is now again trying to ban the small amount that the AMCs are giving.Is any thing wrong with mr bhave.Does he not see who is selling mf wrongly.the IFA or the Bankers...I think there is something with the bankers
shankar
1 decade ago
Mr Bhave...what do u think of urself..hitler or chengez khan..2m Un logo ka pairo ki dhul bhi nahi ho.2mhe bahut baddua lage hai...ur going 2 suffer
surendra
1 decade ago
SEBI is actually trying to make cler the way for big layers who can milch well investors, there in insurance field even 505 comission is being given out of peoples pocket, the SEBI is happy.
gautam
1 decade ago
i want to ask mr. bhave what types of mutual fund selling Bankers. most banks are misselling mutual funds. they selling mutual funds only because of how much commission getting & gift
ganesh
1 decade ago
After the entry load ban the retail investor is affected more and in industry the retail money will back long time but mr bhave is thinking that he is doing favour to the investor actually speaking he is pass the rule to kill the retail investor and i will ask mr.bave how to collect money or service charge from a investor who is investing Rs500/- sip is it possible to collect 2% every month from him or in what manner a distributor will do service to the clients. Distributor did not have any problem he will sell another products, and finally he is not at all did any favour to the investor.
Abhijit
1 decade ago
Entry load should be proportional. The longer is the stay in Mutual Fund the shorter is the entry load. This is the best formula for Mutual Fund industries. SIP should be “no-entry load” as like it were in 2003-04 era in all AMC.
sharath
1 decade ago
All this drama for a mere 2%. Bhave a personal question to you. Who do you think is the common man getting ripped by the most Bankers or Individual agents. You must first look at the amount of false selling that happens at the bank.

Why are banks given the permission to sell investments any way. Who do you think sells the most in insurance policies . you got it right (HOPEFULLY) the BANKERS. If you sincerely looking at safe guarding the interest of the investors, have the rights of bankers being able to sell investments terminated. On a second thought, forget about it. I & everybody else knows you & your team are on the other side
Bornali
1 decade ago
I/we invite Sebi chairman to come N. E State n see how distributor work. He is a brainless
pgprabhu
1 decade ago
I have a suggestion. Anyway Mr. Bhave is not going to get any extention. so why dont he pass an order that Mutual Fund Industry in India stands closed from the date he is relieved from office.I think that will be the greate service to nation
Roopsingh
Replied to pgprabhu comment 1 decade ago
I support your stand-and all distributors should ask president of india to award Mr bhave ''BHARAT Ratna"" for killing MF industry and IFA's without a bullet shot-award should be given during with big guard of honour from all existing IFA's.
shankar kumar
Replied to Roopsingh comment 1 decade ago
As Mr Bhave...has killed the IFA and made them starve I pray ti God that He n his family also starve.
Roopsingh
Replied to shankar kumar comment 1 decade ago
I guess Mr Bhave does not believe in god-so he does not fear doing such sinful acts.USE APNE PAPO KA KOI MALAL NAHI HAI-
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