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AMFI has issued best practices guidelines in which it has allowed AMCs to pay trail commission to MFDs if a client transfers his assets from one MFD to another.
However, AMCs can only pay trail commission after cooling off period of six months from the date of transfer of assets by investors.
This has come after AMFI received requests from many MFDs to review the existing ARN transfer norms which do not permit AMCs to pay trail commission to the new distributor if an investor initiates transfer of his assets to the new MFD.
AMFI said, “Considering that the above rule was introduced over decade ago to curb certain market practices prevailing then, which may no longer be prevalent, and also since the transferee MFD provides the same level of support and service to the concerned investors on the transferred assets.”
Further, AMFI clarified that if an investor transfers his assets back to the first distributor within cooling period, another cooling off period of six months will be applicable for the payment of trail commission.
Citing an example AMFI said, “If the distributor code is changed from Distributor A to Distributor B on March 25, 2024, the Distributor B will be paid trail commission after expiry of cooling off period of 6 months i.e. September 24, 2024. However, if the distributor code is changed back to distributor A on August 25, 2024 (i.e. within cooling off period of 6 months), the 6-month cooling off period will start afresh from August 25, 2024 i.e. up to February 24, 2025 before commission payment is started to distributor A.”
On brokerage, trail commission rate for the new distributor will be lower of the old and new distributor.
