Sinha said that AMFI has the authority to issue best practice guidelines and recommend commission structure of distributors.
SEBI chairman U K Sinha today said that SEBI would not intervene in AMFI’s recent move on capping upfront commission. He is understood to have said this on the sidelines at CII Summit on Capital Market held in Mumbai, said sources.
Sinha said that AMFI has the authority to take a decision on commission structure of distributors and issue best practice guidelines. SEBI would not like to get involved in this, he added.
AMFI has recently issued its best practice circular to AMCs in which it has proposed to put a cap on upfront commission at 1% and no cap on trail commission. However, the commission will be paid on distributable TER, which is gross TER minus operating expense. AMCs can decide the trail on their own but it has to be on perpetual basis. This means that trail commission will be unchanged in all subsequent years. In the new commission structure, AMCs can choose not to pay any upfront and adopt full trail model.
Also, ‘upfronting’ of trail will not be allowed. In MF parlance, ‘upfronting’ means that the entire trail commission is paid at the beginning. This is a common practice in ELSS and other closed end funds.
AMCs are expected to revert with their feedback on the new guidelines by tomorrow. There is speculation that 4 or 5 AMCs will not follow AMFI’s best practice guidelines.
The proposal is expected to be implemented from April 1.
