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AMFI will suspend ‘opt in’ distributors who split application to charge transaction fee multiple times for six months from doing fresh business. This means distributors who have violated ‘opt in’ norms cannot do lumpsum business for six months. However, SIPs, STPs and SWPs will remain intact.
Further, AMFI has asked AMCs and RTAs to recover the transaction fees from erring MFDs and credit it to investors awareness fund. In addition, AMCs will have to issue units of MF schemes in lieu of such deduction.
This has come after AMFI came to know about this practice through SEBI. AMFI said, “We have received a CD from SEBI containing the data of the instances of splitting of transactions by MFDs during the period April 01, 2019 to March 31, 2022.”
The trade body had asked RTAs to check and validate these entries and in case there were any incorrect entries, they were to be brought to SEBI’s attention.
Here are the key announcements that will come into effect from October 1:
- RTAs will have to share details of MFDs who have indulged in splitting of MF transaction to earn higher transaction fee on a monthly basis within 5 days from the end of the month
- AMFI will issue list of such MFDs to all AMCs, RTAs and CAMS-AMFI unit and bar these MFDs from doing fresh business for six months
- Trail commission on business acquired before the date of temporary suspension will continue
- RTAs to put in place enhanced systems and capabilities to ensure strict monitoring of such violations by MFDs.
About opt in distributors
Distributors have an option to ‘opt in’ or ‘opt out’ of transaction charges (TC). Every year, there are two half-yearly windows available to change status – March 01 to March 25 and September 01 to September 25. If a distributor does not opt for anything, it is considered as ‘opt out’.
Further, ‘opt in’ distributors are required to inform all their clients about transaction charges. This charge is deducted from the investment amount and paid to distributors.
Distributors can levy a transaction charge of Rs 150 for getting a new investor and Rs 100 from existing investors if they mobilize Rs 10,000 or above. In SIPs, transaction charge is deducted in 4 instalments starting from the second month provided the total commitment amount is Rs.10000.
‘Opt in’ norms say that transaction charge is not paid if schemes are sold through the stock exchange route. Also, distributors are not supposed to split investments to earn more transaction charges.
Currently, majority of distributors do not charge transaction fees. Many large distributors like banks usually ‘opt in’ to charge such a fee due to high business volume.
