In order to improve transparency, market regulator Sebi has
asked all mutual funds to disclose names of distributors, who receive
commission in excess of Rs 1 crore annually, on their websites.
The fund houses, according to a Sebi circular, will have to
disclose names of distributors having presence in more than 20 locations or
those who have received over Rs 1 crore commission in a year. They would also
have to disclose the amount of commission paid to distributors.
The disclosure, which would also be uploaded on the MF industry
body AMFI's website, would be mandatory from November 10, it added.
The industry players feel that the move is aimed at tracking
the payouts to big distributors like global and domestic banks and large
independent financial advisors.
Distributors earn a upfront commission from the mutual funds
in the first year which is generally higher for selling equity schemes and
lower for debt schemes.
Further, they also earn a 'Trail Commission', which is a
percentage of total business brought by the distributor. This commission is
paid in the subsequent years and accounts for a huge earning for the
distributors.
Securities and Exchange Board of India (Sebi) Chairman U K
Sinha had earlier this year said that the regulator would take steps towards
regulating the mutual fund distributors.
The Sebi board had also decided that as a first step towards
regulating distributors of MFs, selected distributors will be regulated through
Asset Management Companies (AMCs) by putting in place the due diligence process
to be conducted by AMCs.
"Our initial attempt is to regulate the distribution
industry. We tried to cover those distributors whose contribution to the
industry is material. We propose to cover about 50 per cent of the asset under
management (AUM) of the industry," Sinha said.
Source: http://articles.economictimes.indiatimes.com/2011-11-03/news/30355153_1_distributors-upfront-commission-trail-commission
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