AMFI has issued a revised best practices circular on September 11 related to commission payouts.
AMFI has clarified that meetings/training programs for sub-brokers/RMs of a distributor will not be considered as marketing support expenses. However, these expenses should be incurred only for the event and should executed by the AMC. AMCs are not supposed to make any payment to distributors for these events. Also, gifts and advertisements on websites/publications of a distributor will be excluded from marketing support expense.
AMFI has said that AMCs should not pay any marketing support expenses which would be surrogate for upfront commission or advancing of trail. Also, it said that all expenses incurred during marketing support should be backed with necessary documents/evidence.
The total marketing support expenses per distributor per scheme should be within the total surplus (distributable TER less upfront less trail of all transactions for the year). In order to calculate the expenses incurred on distributors, the circular says that if an expense is identified to a particular scheme, it should be divided by the gross mobilization of the distributor for that scheme. If not, these expenses should be divided by the gross mobilization of the distributor across schemes (excluding liquid and ultra-short term bond category).
AMFI has also revised guidelines relating to upfront and trail commission. It has clarified that trail and upfront commission already paid by AMCs should not exceed the distributable TER. “For instance, if upfront commission paid is 1% and assuming the trail commences from 5th month at 75 basis points, the total commission paid would be considered as 1.75% in the first year, which needs to be within distributable TER,” states the AMFI circular. Further, the trail commission in subsequent years can’t exceed 75 basis points. Further, the trail fee for subsequent years should be less than the distributable TER. Distributable TER is gross TER minus operating expense.
AMFI has also issued clarification regarding operational implementation of commission payout in ELSS, RGESS and retirement plans which qualify for tax deduction under section 80C and 80CCG of the Income Tax Act 1956.
For instance, in ELSS, no trail commission will be paid for 36 months (if 1% advance upfront is paid for a period 3 years). Also, for the 37th month, the trail fee can be up to distributable TER less upfront commission.
On the B15 commission payouts, the revised clause says that the ‘additional’ payout for B15 locations at scheme level for any financial year should be within the B-15 expenses accrued to the scheme.
SEBI has allowed AMCs to charge additional TER of up to 30 basis points on daily net assets of the scheme if the new inflows from beyond top 15 cities are at least (a) 30% of gross new inflows in the scheme or (b) 15% of the average assets under management (year to date) of the scheme, whichever is higher.
Besides, the circular says that IAP expense (two basis points) will now be a part of scheme operating expense.
The Board of Directors of AMCs will have to confirm to AMFI on a yearly basis that they have adhered to these guidelines.
