AMFI has put a proposal to ban upfront commissions before AMCs.
AMFI is said to have put a proposal to AMCs to do away with upfront commissions in its recently held board meeting, said sources privy to the development.
“If majority of the AMCs agree to the proposal then it will see the light of the day. I think the proposal will go through. AMCs don’t want to take a hit on their revenues by paying high upfront,” said the Chief Executive Officer who is on the board of AMFI.
Fund officials said that one of the main reason why AMCs may decide in favour of banning upfront commission is relating to recovery of claw back money. According to a SEBI ruling, AMCs have to recover any upfront commissions paid to distributor if the investment is redeemed before one year.
Distributors
said that some AMCs are finding it difficult to recover claw back money from
distributors. “It is difficult for AMCs to recover claw back money if
distributors don’t generate future business. AMCs have to set off any future
payouts from the claw back,” said a Chennai based distributor.
“In case of purchases/switches into any fund, all upfront payments of any nature whatsoever, including incentives or commissions made to distributors on account of these transactions will be subject to a complete and/or proportionate claw-back. The period of claw-back may be related to the exit load period, if applicable. In cases where the claw- back period is not related to the period of exit load, the period considered for the purpose of claw- back should be for a minimum time frame of one year in case of equity oriented schemes and minimum period of three months for all other schemes. This amount to be clawed back will be set off against future payments to the distributor or refunded by way of a direct payment from the distributor to the AMC,” states AMFI Code of Ethics.