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In its revised code of conduct for distributors, AMFI has recently clarified that distributors facilitating online transactions to investors will have to disclose, ‘Regular plans involve payments of commission to distributors’.
However, many distributors have been seeking clarification from AMFI on the implementation of this disclosure.
In the revised code of conduct, AMFI said, “According to SEBI, MFDs cannot deal in direct plans. MFDs shall ensure that on any digital platform provided by MFD for offering investment facility to investor, it is categorically disclosed that the scheme the investor is subscribing to is of ‘Regular Plan’ which involves payment of commission to MFD. The link for the rate of commission received or receivable by the MFD for the different competing schemes of various Mutual Funds shall be prominently displayed on the platform indicating the same as a hyperlink. Further, a link to the AMFI Code of Conduct for Mutual Fund Distributors scheme offer documents (SID/SAI/KIM) shall also be prominently displayed on the concerned page.”
This essentially means that MFDs offering online transactions will have to explicitly tell their clients that regular plans pay commission to MFDs. Also, MFDs facilitating digital transactions will have to prominently display their commission structure from different competing schemes across fund houses through a hyperlink.
What’s the issue?
Majority of individual MFDs use MF transaction platforms like BSE Star MF, NSE NMF II or MF Utilities to facilitate digital transactions on their website. Also, many MFDs use digital transaction facility extended by individual fund houses and registrars.
Since MFDs use application programming interface (APIs) to facilitate digital transactions, which basically lands investors to these platforms for transaction, MFDs say that these platforms should display the disclosure.
However, many believe that the revised code of conduct is applicable for MFDs and not transaction platforms; hence, MFDs will have to find ways to display this.
What do MFDs say?
Pune MFD Harshvardhan Bhusari of FINPALs said that the industry needs more clarity on this. “There is a lot of ambiguity on implementation of this disclosure. While MFDs having their own transaction platform or working with NDs need not worry about the compliance, majority of MFDs working with platforms need clarity on this. We need a guidance note from AMFI on how to display this disclosure on website, when it has to be placed, what font size should be used and so on.”
Mumbai MFD Hemant Rustagi of WiseInvest believes that guidance from AMFI would help many MFDs comply with the norms. He said, “Putting a specific disclosure on website would require guidance note.” Rustagi points out that one way to do is by putting this disclosure right before investors get into exchange platform.
What is the AMCs take on this?
A CEO who is on the AMFI board believes that both MFDs and exchange platform will have to put this disclosure on their website. He; however, said that AMFI may issue further clarification on this.
A senior AMC official on the AMFI ARN committee said that AMFI has been discussing these clauses and will bring uniformity in implementing these norms.
