During the current ongoing SEBI audit, the market regulator has reportedly asked a few AMCs to put folios with withheld commission under direct plan, confirmed three MF officials.
A CEO requesting anonymity who received such a query said that the intention of SEBI is simple: if fund houses are not paying commission to their distributors then why are they charging investors.
He, however, said that such a switch is impossible. “We have written to SEBI that such a switch is not possible in the MF industry. Firstly, fund houses will have to take a consent from an investor to switch his folio from regular plan to direct plan. Finally, such a switch is considered as redemption and reinvestment and it would incur capital gain tax.”
Another official told Cafemutual that SEBI wants to ensure that investors do not end up paying more. “We have been asked why we can’t put folios having withheld commission in direct plan. We have responded to SEBI that there is a commercial arrangement between AMCs and distributors which cannot be breached. However, SEBI is yet to come back to us on this.”
AMCs have withheld commission due to a number of reasons such as claw back of commission, failed transaction, incomplete KYC and so on. Also, a few distributors sell schemes of fund houses without empanelment. In such a scenario, AMCs withhold commission and ask distributors to get empanelled with them to get their commission.
It is pertinent to mention here that SEBI had given a three-month window ending on May 21, 2019 to fund houses to pay withheld commission to distributors till May 21, 2019. Although AMFI has reportedly sought SEBI clarification if this three-month window is applicable on assets with incomplete KYC, the circular in the current form states that AMCs cannot pay withheld commission after May 21, 2019.
