SEBI's diktat to mutual funds to disclose distributors gross commission for greater transparency can stunt the growth of the industry.
WHY IT IS UNCALLED FOR
If commission is disclosed, retail investors may ask for a pass-back from the hard-pressed distributors
The commission income of distributors doesn't reflect their mounting expenses
The move might make the business models of several small distributors unviable, hurting retail inflows into mutual funds
It appears to be a move to inject transparency in the system, but it has stirred up a hornet’s nest. The Securities and Exchange Board of India (SEBI) has decided to make it mandatory for mutual funds to disclose to investors the gross commission earned by their distributors from October 2016, but the plan has already run into stiff opposition. The industry association, Association of Mutual Funds in India (AMFI), is itself questioning its rationale. “Nowhere in the world does such a practice exist. One could have understood if the distributors were earning huge sums of money. Disclosing gross commission paid to distributors is harsh on them,” says C.V.R. Rajendran, CEO, AMFI.
The worry for AMFI and the distributors is that the regulator isn’t portraying the right picture to investors. The commission doesn’t include a distributor’s expenses, they point out. “My worry is if their commission is disclosed, investors may ask for pass back which would be bad for the overall mutual fund industry. It will slow down the growth of retail book,” says Pawan Agarwal, founder of investguru.in, a Noida-based mutual fund distributor that has 4,000 clients and manages around ₹58 crore of assets under management (AUM).
This story is from the October 23, 2016 edition of Business Today.
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This story is from the October 23, 2016 edition of Business Today.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
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