SEBI is likely to issue guidelines for fund houses in a bid to tighten disclosure norms of commission payouts to the distributors.
In an email sent to fund houses, AMFI said that SEBI may issue further guidelines on disclosure of commission payouts.
The sales head of a foreign fund house said that SEBI is likely to come out with stringent norms for fund houses to carry out due diligence process of distributors. “A few distributors have churned investor’s portfolios due to the high upfront commission in closed end equity funds. The market regulator may tighten disclosure norms to make due diligence of distributors process more stringent.”
SEBI rules mandate fund houses to disclose commission payouts of top distributors on yearly basis on their respective websites. Currently, AMCs have to do due diligence of distributors who have multiple point presence (more than 20 locations), AUM over Rs.100 crore across industry in the retail category, commission received of over Rs. 1crore per annum across industry and commission received of over Rs.50 lakh from a single mutual fund. In case a distributor has an excessive portfolio turnover, i.e. more than two times the industry average, AMCs have to do additional due diligence of such distributors.
It remains to be seen how the new disclosure norms on commission payouts will help curb such practices.
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