In order to improve transparency, market regulator SEBI ordered all mutual funds to disclose names of distributors, who receive commission in excess of Rs 1 crore annually, on their respective websites.
Fund houses, according to a Sebi circular, will have to disclose names of distributors who have their 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, was made mandatory from 10 November 2011.
Experts are of the opinion 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. 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.
SEBI board 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.
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