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SEBI has issued a consultation paper in which it has asked AIFs to ban upfront commission in AIFs and move to all trail model.
This has come after the market regulator found that AIFs pay upfront commission of 4-5% to distributors.
SEBI has proposed that AIFs will have to follow all trail model in Category III AIFs which are long only and long and short funds. Cat I and cat II can offer upfront commission of up to 1/3rd of the present value of the total distribution fee.
SEBI said, “A move towards trail model of commission will ensure that the distribution of AIFs is in alignment with the interest of investors, reduce the scope of mis-selling of AIFs. Further, this shall also bring AIFs in parity with regulatory framework for Portfolio Managers and Mutual Funds by removing existing commission arbitrage among these products.”
In addition, SEBI has asked AIF players to offer direct plans. These plans will have no distribution or placement fee. “Investors on-boarded via the direct plan to be provided for an adjusted higher number of units, taking into account the lower distribution charges applicable to them versus other investors, such that all investors would continue to see the same Net Asset value (NAV) on their unit holdings,” said SEBI.
With this, SEBI will put AIF in line with PMS and MF.
