AMFI’s best practice circular on commission structure will be implemented for three months to see if the industry can adapt to the new regime. If things don’t work out, it is likely that AMFI will revisit the rules, said sources.
“This rule will be implemented for three months to see if things are working out. If there is a disruption, then we will have to revisit the rule,” said the CEO of a bank sponsored fund house.
“Yes, we will review the progress after three months. It may happen that there will be some tweaking in the regulation. We have to wait and watch,” said the sales head of a foreign fund house.
From today, the upfront has been capped at 1%. The commission will be paid on distributable TER, which is gross TER minus operating expense. Assuming the distributable TER (net TER) of a scheme is 2% then maximum upfront commission will be 1%. This upfront commission will include expenses incurred on distributors in the form of junket, loyalty program etc.
“Not all AMCs will be able to cope with this new regulation. This is an uncharted territory and thus it will be reviewed after three to six months,” said the CEO of a bank sponsored fund house.
However, some say that it is just a compliance audit. “The AMCs will have to get themselves audited to see if everything is followed in true spirit. The report will then be presented to trustees and then to AMFI,” said a CEO of a private fund house.
Meanwhile, some AMCs are said to be taking legal view on the new rule. “A few AMCs are against this rule. One fund house has got an opinion from a top legal expert who has reportedly opined that the upfront cap tantamounts to cartelization,” says a Mumbai based distributor.
