AMFI has sent a best practice circular to fund houses in which it has relaxed the new commission structure by allowing ‘upfronting’ of trail in SIPs, ELSS and RGESS.
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.
An SMS sent to H N Sinor, CEO, AMFI didn’t elicit response till the time of writing this piece. However, three senior AMC officials have confirmed this development.
As proposed earlier, AMFI has allowed ‘upfronting’ of trail for SIPs of up to Rs.10,000 per month having a minimum tenure of 36 months. It would be paid for a maximum tenure of 36 months even if the tenure of such SIPs exceeds 36 months. Also, such ‘upfronting’ has been capped at 1%. The balance will be paid through trail commission.
The trade body has formulated a method (SIP amount*36 months * 1%) for calculating such commissions. For instance, if a client invests Rs.3,000 per month for 60 months in an equity fund through SIP then distributor will be eligible to get an upfront commission of Rs.1,080 (3000*36*1%) which is 1% of all SIPs till 36 months.
Similarly, in ELSS, ‘upfronting’ of trail would be applicable to the extent of investment of up to Rs.1.50 lakh per year, per PAN. Also, the maximum commission under ELSS has been capped at 3%. Such commission payouts can go up to Rs.4,500 or 3% of Rs.1.50 lakh.
In addition, the trade body has allowed such a ‘upfronting’ in RGESS investments up to Rs.50,000 per year, per PAN. The maximum commission under this scheme can go up to Rs.1,500 (i.e.3% of Rs. 50,000).
There would no trail commission on ELSS and RGESS for three years.
Earlier, AMFI had issued its best practice circular to AMCs in which it had asked fund houses to discontinue ‘upfronting’ of trail across all schemes. Also, it has put a cap of 1% on upfront commission and given freedom to fund houses to decide trail commission within the distributable TER.
Last week, AMFI had invited feedback from fund houses before June 12 in order to relax the new commission structure.
The revised commission structure will come into effect from July 1, 2015.
