Chief executives of fund houses are likely to meet SEBI chairman U K Sinha on December 16 to give their feedback on upfront commissions.
Top executives of mutual fund industry are likely to meet SEBI chief U K Sinha on December 16 to discuss the issue of high upfront commissions being reportedly paid in closed end funds, said fund officials.
Sources said that AMFI board is also likely to discuss this matter in its forthcoming meeting scheduled on December 22.
SEBI officials have recently met with top AMC officials to get their feedback on this matter. “We told SEBI officials that the problem is only with some top 10-20 distributors and a handful of AMCs. We are comfortable with status quo, a mix of upfront and trail,” said the CEO of a private sector AMC who met SEBI officials.
Some AMFI board members had met last month to discuss this issue. However, they could not reach a consensus.
The industry seems to be divided over this matter. Some AMCs support an all trail model while others say that there need not be a change in the current pricing structure.
However, many industry officials concede that there should be some sanity in pricing and fund houses should not indulge in price war to gather assets. “It can indirectly bring some regulation to tackle this menace. As I understand SEBI is not comfortable with the high upfront commissions being paid in closed end funds. Only a handful of fund houses have the capacity to pay such high upfront. The entire industry can’t be penalized because of the actions of few players,” said the CEO quoted above.
Arvind Sethi, Managing Director & CEO, Tata Mutual Fund says that the pricing structure should be structured in such a way that it doesn’t incentivize distributors to churn. “We can pay 1-1.25% upfront and 1% trail in the first year which can go up to 1.50% in the second year and so on on so there’s a balance and the distributor is not incentivized to churn. Some amount of upfront is required to take care of distributor’s cash flows.”
Those
in favour of maintaining status quo say that given the long term nature of
closed end funds where investors are locked in for a minimum period, upfront
commissions are justified and it is best left to the judgment of individual
AMCs to decide the quantum of upfront commissions.
