Here are some reassuring words from SEBI Chief U K Sinha for distributors. In a recent interview with Value Research published in the anniversary issue of Mutual Fund Insights, Sinha says that he is in support of trail model. “My belief is that the trail commission is a very good idea.”
He was responding to a question on the Sumit Bose committee recommendation on introduction of reducing AUM trail model. In this model, in case of lump sum investments, the trail would decline over the tenure of investment and become nil after a certain period of time, the committee has proposed.
Currently, distributors get a trail commission on the assets under advisory. If the AUA grows, their income grows and vice versa. Trail commission forms a major part of advisors revenue. At a time when many advisors are moving to all trail model, this proposal from Sumit Bose committee had come as a shocker.
SEBI Chief has said that he disagrees with the Sumit Bose committee recommendation on reducing trial commission.
He acknowledged the fact that distributors need trail commission to encourage investors to invest for long term. “The fact is that distributors should be encouraged to make retail investors invest for a long term. This is a premise to which I very substantially subscribe,” Sinha is quoted.
However, he said that the industry needs to pay trail commission within a certain threshold limit.
Distributors say that introduction of reducing trail model would encourage churning and force distributors to sell other products which fetch higher commissions.
AMC officials too support continuation of status quo. “We would like distributors to keep investors in our funds for as long as possible so that they can actually realize the gains the fund makes over a long period of time. The model should be – the longer the holding, the higher the trail. We support gradual increase in trail but up to a certain amount for funds that are held beyond three years,” Vivek Kudva, Managing Director, Franklin Templeton Investments (India and CEEMEA) had earlier told Cafemutual.
