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Upon initiating a study regarding the commission paid to mutual fund distributors by market regulator SEBI, the attention has been drawn towards the non-financial incentives provided by mutual fund houses to their top-performing distributors.
Based on their performance, few mutual funds have taken distributors to exotic tourist locations on the pretext of training programme.
Distributors were ranked based on the number of fresh SIPs they have registered in the last one year and were flown to tourist spots both in India and abroad, said a distributor on condition of anonymity.
In a letter to mutual fund houses, the Association of Mutual Funds in India said that “providing training programmes to MFDs (mutual fund distributors) based on achievement of specific sales targets is not in line with the letter and spirit of regulatory guidelines and should not be allowed, and the same has been endorsed by the Board of AMFI.”
“All AMCs are advised against incentivising MFDs by linking the training programmes being offered to meeting the SIP sales targets. Further, AMCs which already have launched (or propose to launch) any special SIP drive under the Regular Plan, wherein the MFDs are incentivised by way of training programmes, are requested to withdraw such programmes forthwith and send a confirmation to AMFI,” it added.
SIP inflows up
The gross inflows through systematic investment plan into mutual funds have touched a new high of ₹1.56-lakh crore after hitting a new high month-on-month last fiscal.
Despite heavy redemption and stoppage, the net flows of SIPs increased 77 per cent in the year ended March to ₹84,224 crore as fresh SIP registration increased steadily.
In fact, the net inflows accounted for 54 per cent of highest ever gross SIP inflow of ₹ 1.56-lakh crore logged in FY23, according to AMFI data.
Coming down heavily on the mutual fund industry, SEBI had recently suspended the special incentive 0.30 per cent in total expense ratio given to distributors for attracting investment up to ₹2 lakh from beyond top 30 cities.
The B-30 incentive was banned after SEBI found distributors splitting large investments from smaller cities to below ₹2 lakh for earning higher commission. The distribution commission paid by mutual funds has increased to 55 per cent of the expense ratio against 45 per cent logged in last three years.
Despite the ban on upfront commissions, distributor profitability has recovered at a compounded annual growth rate of 30 per cent since FY19 against 15 per cent for asset management companies, said a recent study of Kotak Institutional Equities Research.
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