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FIAI Opposes AMFI Move

Monday, March 30, 2015
By A Business Reporter

MF Distributor Commission Capped At 1% From April 1

Mutual funds' grouping AMFI has announced that upfront commissions paid to distributors selling schemes would be capped at one per cent from April 1. The decision comes against the backdrop of concerns raised by market regulator Sebi about high commissions being doled out to mutual fund agents.

Introduction of cap on commissions would help ensure a level playing field and curb instances of exorbitant payments. At present, there is no limit on upfront commission and some fund houses pay upfront commissions of up to eight per cent to their distributors for selling a MF scheme.

In a circular issued today, Association of Mutual Fund Industry in India (AMFI) said that upfront commission should not exceed 100 basis points (one per cent) for the first year. "Further, upfront commission shall not exceed distributable TER (Total Expense Ratio) of the scheme if the same is below 100 basis points," it added.

However, additional incentives provided for distributors in smaller towns would be exempt from the cap. One of the major concern has been that the practice of paying high commissions is detrimental to the interests of small players in the domestic mutual industry, where big entities account for substantial business.

According to Amfi, there would be exemptions for commissions with regard to schemes sold in smaller towns. In mutual fund industry small towns are generally referred to as B15 (or beyond top 15 cities). The guidelines would be applicable for "all open ended, close ended schemes as well as interval schemes, including liquid schemes, debt schemes and equity schemes etc, but would exclude exchange traded funds," the circular said.

Systematic investment plan (SIP) and systematic transfer plan (STP) for which requests were registered before April 1 would also be exempted from the cap. There are a total of 45 mutual funds in the country and their total Average Asset Under Management currently stands at over Rs 12 lakh crore.

However, the  Financial Intermediaries Association of India (FIAI) in a statement said it is not in favour of fixing prices or mandating pricing formulas and/or jointly deciding pricing matters for the distribution of mutual funds as such initiatives are generally considered to be against free trade practices.

According to it, “We strongly recommend a status quo on the present commission structures as many advisors and distributors have made their business plans and also have invested into this business on the basis of the estimated cash flows as per the prevailing pricing structures. Any sudden disruption of this nature suo motto by AMFI is not warranted at this juncture when the country is headed towards progress and development.

This move to reduce commissions will hurt the investor as it will lead to many small IFAs quitting the business and leaving investors under-served. Only few of the Distribution entities like Banks, National players and IFAs with a big trail book, would be able to survive this pricing shock, but with bleeding balance sheets”.

MF Update
Sebi cancels registration of PineBridge Mutual Fund
Capital markets regulator Sebi today cancelled the registration of PineBridge Mutual Fund with immediate effect following the transfer of all its schemes to Kotak Mahindra MF. The Securities and Exchange Board of India (Sebi) in a statement said that it has "cancelled the certificate of registration of PineBridge MF and has withdrawn the approval granted to PineBridge Investments Asset Management Company (India) Pvt Ltd, to act as the Asset Management Company to the Mutual Fund." The move comes pursuant to the 'transfer of schemes of PineBridge MF to Kotak Mahindra MF'. In September 2014, Kotak Mahindra Asset Management Company, a wholly-owned subsidiary of Kotak Mahindra Bank Ltd, had executed a definitive agreement to acquire the domestic schemes of PineBridge MF, subject to regulatory approvals. Consequently, with immediate effect, the PineBridge MF PineBridge Investments Trustee Company cannot carry out any activity as a MF and AMC respectively.

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