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SEBI has asked AIF companies not to pay upfront commission to their distributors for distributing category III AIFs. Instead, the market regulator has introduced all trail commission model for distributors in category III AIFs.
SEBI has further asked AIFs to pay such a commission from the management fee received by AIFs. That means, AIFs cannot pay commission from their company’s books
Category III AIFs more popularly known as long only funds and long short funds employ diverse or complex trading strategies by investing in listed and unlisted derivatives. They are also allowed to employ leverage strategies i.e. borrowing to invest. Many distributors sell category III AIFs offered by asset management companies and fund managers.
Further, SEBI said that category I and category II AIFs can continue to pay upfront commission to distributors but to the extent of one-third of the total distribution fee. The remaining fee has to be paid on equal trail basis over the tenure of the fund, clarified SEBI.
SEBI also clarified that AIFs will have to disclose the commission structure of distributors at the time of on boarding clients.
The will come into effect from May 1, 2023.
