SEBI has reportedly asked a few fund houses to give details of breakup of their total expense ratio (TER).
This is in wake of alleged violation of AMFI’s best practices circular on commission structure of distributors. In 2015, AMFI had issued its best practices circular to AMCs in which it had asked fund houses to discontinue ‘upfronting’ of trail across all schemes. Also, it had put a cap of 1% on upfront commission and given freedom to fund houses to decide trail commission. However, it has to be within the distributable TER. Distributable TER is gross TER minus operating expense.
A Mumbai-based distributor told Cafemutual that a few AMCs pay as much as 2% as trail commission to their distributors.
A senior fund official requesting anonymity said that the market regulator wants fund houses to rationalise commission structure of distributors and management fee of AMCs. He said, “If TER comes down, naturally, fund houses cannot pay the commission they are paying today. IFAs cannot expect to increase their revenues through higher commissions.”
Last week, SEBI Chairman Ajay Tyagi had said at an industry event that SEBI will soon come out with a discussion paper on TER.
