AMFI has allowed AMCs to offer three year upfront commission at the time of SIP enrollment to distributors, said sources familiar with the development. This means that the trail would continue to be offered.
While a few fund houses are said to have already started the new incentive structure in SIPs, most other AMCs are likely to roll it out from August.
AMCs can now offer three year upfront commission when a SIP is registered, subject to a cap of maximum 1%, on SIPs of up to Rs. 10,000 per month. However, this rule would be applicable for SIPs having a minimum tenure of 36 months. If clients redeem or stop their SIPs before three years, the proportionate amount of upfront commission would be clawed back, said sources.
“AMFI has allowed three year upfront commission in SIPs to attract retail clients. This is the reason why only SIPs of up to Rs. 10,000 per month are eligible to offer three year upfront commission at the beginning. We are planning to start this incentive structure from August,” said the CEO of a bank sponsored fund house.
The maximum upfront a distributor can earn on a three year SIP of Rs. 10,000 per month is Rs. 3,158 after deducting service tax.
However, AMCs can decide whether they wish to provide three year upfront or not. Some AMCs are not planning to offer this incentive structure to distributors.
AMC officials say that ‘upfronting’ would only work in ELSS. “It is difficult to claw back commissions in open end funds if investors redeem. More distributors are now opting for trail instead of upfront. We will offer only to those distributors who need it,” said the sales head of a bank sponsored fund house.
AMFI had invited feedback from fund houses before June 12 in order to relax the new commission structure.
Cafemutual was the first to report about this development. Read here.
