A few fund houses are yet to take a final call.
Most fund houses are planning to adhere to AMFI’s new best practice guidelines on commission structure. Fund houses which are willing to comply with AMFI’s new diktat cited a number of reasons like investor interest, compliance issues, peer pressure and fear of regulatory action behind their decision to adhere to AMFI’s guidelines.
H N Sinor, Chief Executive Officer, AMFI confirmed that AMFI has received confirmation from majority of fund houses. “We have received confirmation from almost all the AMCs that they will follow the new guidelines. However, 3-4 fund houses have some issues which we are trying to address.”
Last week, AMFI 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. AMCs can decide the trail on their own but it has to be on perpetual basis. Also, AMCs have a choice of not paying any upfront and adopting full trail model. The new commission structure is to come into effect from April 1.
AMFI’s circular said that the new commission structure will be reviewed after three months. However, a few industry officials are skeptical of any change in the proposed guidelines in future.
Most of the fund houses to which Cafemutual spoke to are going to implement AMFI’s recommendation on new commission structure from April 1. However, a few AMCs are yet to take a final call.
A senior official of a large fund house said that his AMC follows every best practice circular in true spirit. Another senior official of a private sector fund house said that his AMC would adhere to the guidelines as majority of fund houses are abiding by it.
A few small fund houses fear that they will face SEBI wrath if they don’t toe the line. “AMFI is not an SRO and it does not have any legal stand to enforce its guidelines. However, being a small fund house, we cannot fight with SEBI and AMFI,” said the sales head of an emerging fund house.
While some AMCs have been dissenting AMFI’s proposals without coming out in the open, Sundaram has openly opposed the trade body’s decision to cap upfront. “We are very concerned that concerted industry action on pricing can be challenged by distributors under the CCI as amounting to a ‘cartel’. While I believe this is not the intent or the tenor of the current proposal, legal action from small distributors (which is likely) will muddy the waters and lead to unnecessary bad press for our industry – particularly when we are trying to attract new IFAs into the market. Come 1st April we are planning to cap commissions at 4%, reduce close ended fund launches, make call-backs to customers in higher risk funds and spend investor education funds to combat mis-selling,” Harsha Viji, Managing Director, Sundaram Asset Management told Cafemutual last week.
Similarly, SBI Mutual Fund is yet to take a final decision on this. Dinesh Khara, CEO, SBI Mutual Fund, “We will take a final call on whether to adhere to guidelines tomorrow after the meeting of executive committee.”
The CEO of a large fund house told Cafemutual, “There will be no legal action against AMCs who will not implement the new commission structure. However, SEBI may blacklist these fund houses. The market regulator has repeatedly asked fund houses to adhere to best practice guidelines which is in the true spirit of business.”
It remains to be seen how many fund houses decide not to follow AMFI’s best practices guideline. However, SEBI Chairman U K Sinha has recently said in a public forum that the regulator would not intervene in this matter.
