AMFI may relax the new commission structure in its forthcoming meeting scheduled to be held in July, said two officials in the know of the development.
The trade body is likely to allow ‘upfronting’ of trail in ELSS and SIPs. Both these officials had attended AMFI board meeting held on Friday.
In MF parlance, ‘upfronting’ means that the entire trail commission is paid at the beginning. This was a common practice in ELSS and other closed end funds.
However, ‘upfronting’ of trail in ELSS would be applicable to the extent of investment of up to Rs.1.50 lakh per PAN, said sources.
Also, the maximum commission paid under this proposal will be capped. AMFI is said to have asked fund houses to give their feedback on this proposal.
Earlier, AMFI issued its best practice circular to AMCs in which it had asked fund houses to discontinue ‘upfronting’ of trail across all the schemes. Also, it has put a cap on upfront commission at 1% and given freedom to fund houses to decide trail commission. The commission has to be paid on distributable TER, which is gross TER minus operating expense. AMCs can choose not to pay any upfront and adopt full trail model in the new commission structure.
Sources said that AMFIs earlier proposal was to put a cap on such commissions (upfronting of trail) at 2.25% and 3.50% on NFOs and ELSS respectively. However, this had no mention in AMFI best practice circular.
