One of our readers wrote to us with the following queries.
If a switching of fund is done by a new distributor, who will receive the trail commission?
Abhishek Chandram, R G Wealth Management
We are assuming that you are talking about transfer of AUM from an existing distributor to a new one. In this case, the new distributor has to ensure that his/her ARN is valid and he or she is KYD compliant before receiving assets.
Remember that the existing distributor will have to transfer the entire assets. Partial transfer of assets is no longer allowed.
After the existing distributor transfers the entire assets to the new distributor, he/she will have to surrender the ARN to AMFI within 15 days of such a transfer. AMFI will then cancel the ARN and transfer the entire AUM to the new ARN.
However, if the existing distributor continues to work as a sub-distributor with the distributor to whom he/she has transferred the assets, he/she is not required to surrender the ARN with AMFI provided he or she does not do fresh business after transferring assets.
AMCs would pay commission to the new distributors only after cancellation of the old ARN except when the old ARN holders opts to become a sub-distributor. The new distributor will get trail commission on a prospective basis on valid assets. The trail commission rate would be lower of commission on old ARN and new ARN.
If the customer has given consent to change the ARN code (distributor) but the AUM of client continues in the same fund, who will get the trail income?
Abhishek Chandram, R G Wealth Management
According to AMFI best practices guidelines on transfer of assets, investors can change their distributors at any point of time. Simply put, investors can switch to direct plans or change their distributors without obtaining NOC from their existing distributor. In this case, AMCs will not pay trail commission to any distributor.
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