Competition panel probes cap on mutual fund distributor fee

The Competition Commission of India (CCI) is investigating the Association of Mutual Funds of India’s decision to cap the upfront fees paid to mutual fund distributors at 1 per cent.

Confirming that the CCI is considering the content of numerous letters received from distributors across the country, Commission sources said there will be a thorough investigation to ascertain whether it is a case of cartelisation.

Mutual fund distributors have questioned the locus standi of AMFI, a lobbying body, to limit the fees. Anticipating a backlash from MFs, most of the distributors’ letters addressed to the competent authority were anonymous, he said.

Terming the cap as illegal, a retired advocate-turned-financial advisor in a letter to the CCI said the price fixing is unprecedented and illegal. For instance, he said, IRDA has fixed regulatory norms on commission payouts and pricing of third-party policies in motor insurance, but in all unregulated areas there is freedom to negotiate, with no such open cartel as in the MF industry.

This apart, the letter added, by capping the upfront commission, small distributors are forced into a trail model which means expenses today and income in instalments. This practice will not only kill small distributors but also discourage new people from entering the industry, thus nipping competition in the bud.

In March, as part of its best practices AMFI issued a circular limiting the upfront commissions paid to distributors for selling mutual fund schemes at 1 per cent.

Mutual funds were given freedom to decide on the trail commission, which is paid annually till the investor stays invested in a scheme. The new commission structure came into force in April.

The cap on commission was imposed after the capital markets regulator SEBI expressed concern on mis-selling of products by MF agents to garner the upfront commission of 8-10 per cent paid by certain mutual funds.

Speaking at a recent industry event, UK Sinha, Chairman, SEBI, said a committee of the Financial Stability and Development Council is examining the issue of commissions and distribution charges in the MF industry. “The regulator does not want to get into the operational issues of fund houses at this stage,” he said.

Given the buoyancy in the equity market, the assets under management of 44 asset management companies peaked to a lifetime high of ₹12.03 lakh crore as of May-end.