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Capital market regulator SEBI has said that mutual fund distributor commissions be kept under manageable limits.
Speaking at the 11th CII Mutual Fund summit in Mumbai on Tuesday, SEBI Chairman U.K. Sinha said “Good times are the times to pause and think about medium term and long term measures for its future relevance and sustainability. The commission paid to distributors in India is one of the highest in the world. World over cost and fees are going to be a very important point in any debate. It has to be kept within manageable limits so that no eyebrows are raised.”
Sinha observed that distributor commissions paid out had doubled from ₹2,500 crore in FY14 to ₹5,000 crore in FY15.
Expressing concern that only 295 advisors had registered with SEBI, Sinha said that SEBI cannot allow distributors to advice. I have asked my team to look into cases of distributors who continue to advise clients. The financial stability and development council constituting the financial regulators and the finance ministry (FSDC) is discussing the cost and fee structures amongst financial products.
Sinha said that SEBI would like to have a strong self regulatory organisation (SRO) once the litigation issues are sorted out. “Unfortunately, the SRO matter has gone to the judicial authorities. The matter has to be resolved by the judiciary only then can we move forward. We had not anticipated this.”
Sinha cautioned that if the mutual fund industry did not demonstrate self discipline when it came to distributor commissions, nothing stopped SEBI from stepping in.
“But in my view SEBI should refrain from taking action unless it is warranted because when SEBI takes action into how much commission should be paid and not paid it will be number one very harsh and impact large number of players and doing it away would be difficult,” he said
“I also mentioned that not only SEBI but also the government is worried about this and they have already set up a high powered committee to look into the type of cost and fees that are being charged. So, this is not a issue which an AMC can wish away. So I made it very clear to them that they should read the writing on the wall and introduce some self discipline which would be preferable,” Sinha said.
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