Mutual fund houses will now stick to a uniform structure on how much commission they pay their distributors, fund CEOs agreed at a meeting of their industry body on Wednesday. They also agreed to put checks in place that will guarantee compliance, including “naming and shaming” any fund that flouts the structure, a senior fund CEO who didn’t want to be named told BusinessLine .
SEBI had recently said that it will step in if the fund houses failed to fall in line with the commission structure prescribed by industry body Association of Mutual Funds of India. Under these guidelines, the up-front commission has been capped at 100 basis points while trail commission, which the distributor earns over the lifetime of a customer’s investment, varies depending on the asset type. This will either be level or decrease over the years.
The other measures agreed to by the companies include reporting a non-compliant fund house to its trustee and to market regulator SEBI. Distributors would not be spared either, and would likely lose their registration.
The CEO quoted above said all fund houses agreed to adhere to the same structure because of strong pressure from both trade body Amfi and from regulator SEBI. They agreed to “let bygones be bygones” and comply with the guidelines now on.
Earlier, the fund houses which were compliant complained of losing business to non-compliant fund houses which paid distributors higher commissions, gave them incentives out of their investor awareness budgets, paid a portion of their trail commissions upfront or paid part of a distributor’s service tax liability. One foreign fund house had initially not agreed claiming it would amount to creating a cartel, which would attract litigation from its home country.
The only vocal opponent to the guidelines till now – everybody else broke rules more covertly – was Sundaram Mutual Fund, which did not attend the meeting. Its CEO, Sunil Subramaniam, could not be reached for comment.