SEBI has cautioned AMFI that it may act tough if AMCs don’t form a consensus on maintaining a uniform commission structure, said two senior officials privy to the development.
SEBI has conveyed this message to AMCs through AMFI in yesterday’s board meeting.
AMFI has capped upfront commission at 1% and this has not gone down well with some AMCs who feel that it will restrict them from competing with larger fund houses. Sources said that SEBI is keenly watching the situation and will act if necessary. A few fund houses who have reportedly not been adhering to AMFI’s best practices guidelines on commissions declined to comment.
SEBI is said to have told AMFI that it may consider implementing some of the recommendations made by the Sumit Bose committee if AMCs don’t budge.
The Sumit Bose committee has recommended lowering the TER. “Competition has not reduced costs much below the expense ratio that was fixed when the AUM of the industry was much lower. The regulator should lower the cost caps as the AUM rises over time,” recommends the committee.
For distributors, the committee has recommended that commissions should only be paid as level or reducing AUM based trail. In the case of lump sum investment, or upon termination of a systematic investment plan, the trail commission should be declining (or nil after a specified period of time).
“SEBI has cautioned that it will look at implementing the Sumit Bose committee recommendations if AMCs don’t adhere to commission rules. However, it won’t be easy to implement as it has to get a green signal from the SEBI MF Advisory committee,” said the CEO of a private sector fund house.
However, in a recent interview with Value Research published in the anniversary issue of Mutual Fund Insights, Sinha said that he is in support of trail model. “My belief is that the trail commission is a very good idea. 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 was quoted.
Meanwhile, AMFI has called for a meeting with IFA Associations tomorrow in which the industry body will ask distributors to inform AMFI if AMCs flout the commission rules. “Distributors can’t help in this case. They accept whatever AMCs pay them. However, SEBI may call a trustee meeting if AMCs don’t comply. Now, it is up to AMCs to act,” said the above quoted CEO.
AMFI has directed AMCs to follow the best practice guideline on commission in spirit from 1st January.
