“There are certain AMCs that pay quite steep distribution commissions to push their products. This puts pressure on other industry participants. A standard set by the regulator would help in curbing such practices,” said the CEO of a large-sized fund house, who is also a director at Amfi.
Another CEO of a mid-sized fund house, who is also on AMFI’s board, confirmed the development, adding that the industry has been in talks with Sebi to lay down a regulatory framework for distribution commissions.
As reported by Business Standard earlier, commissions paid for selling open-ended equity schemes were as high as 200 bps, while some closed-ended schemes have paid as much as 600 bps in 2017-18.
“Virtually, nobody is following the best practices guidelines and larger distributors with bargaining clout are pocketing higher commissions,” said a senior industry official.
High upfront commissions have been particularly instrumental in driving up sales of close-ended schemes. Launch of these funds had gained momentum in the past financial year after two years of lull. According to data from MF tracker Value Research, such schemes garnered investments to the tune of Rs 503 billion in 2017-18, an increase of 80 per cent over the previous financial year.
The Amfi guidelines also ask intermediaries to refrain from recommending inappropriate products solely for a higher commission. Intermediaries are also asked to avoid churning of portfolios or splitting of applications to earn higher commissions. At the end of May 2018, the total AUMof the industry was Rs 22.9 trillion.