'Foreign junkets for mutual fund distributors may continue'

Mutual fund houses may continue with the practice of sponsored foreign junkets for their distributors in the absence of clear guidelines from Sebi in this regard, say some fee-only mutual fund advisors. Asset management companies often take their distributors to foreign destinations for training sessions.

Sebi recently came out with comprehensive guidelines on 'Total Expense Ratio (TER) and Performance Disclosure for MutualFunds.'

“Sebi has left a loophole by not defining clearly the training sessions. AMCs conduct such sessions for distributors in foreign locations to make their relationship stronger and in turn get more business from them,” says Kishorkumar Balpalli, founder, MyMoneySage.in.


The Sebi circular read, ‘training sessions and programmes conducted for distributors should continue and should not be misused for providing any reward or non-cash incentive to the distributors.’

Anand Vardarajan, Business Head-Banking, Alternate Products and Product Strategy, Tata AMC, doesn't agree to the viewpoint. “It is a very thoughtful move by Sebi. This is a knowledge based industry. We are not dealing with any tangible product, but with a financial product. Understanding the concerns, the regulator has given a carve out for conducting training, which is a requirement,” says Anand Vardarajan.

However, fee-only mutual fund advisors believe that most distributors do not sell schemes only on the basis of performance of a scheme, but on the basis of relationship with the AMC. “MF industry works on a relationship basis. A distributor is tend to be biased towards an AMC which pays better attention to him,” says Swapnil D. Kendhe, founder, VivekTaru, a fee-only financial planner.

“AMCs lure distributors by offering freebies as they get a lot of business from them, but after Sebi’s ban on upfront commissions and reduction in the total expense ratio, we might see industry moving to a fee-driven model. At present, the fee-only advisors form a miniscule part of the industry,” says Jitendra Solanki, founder, JS Financial Advisors.

These advisors believe that Sebi would plug the remaining loopholes in future. “Sebi banning of upfront commission will reduce the miselling to a great extent,” says Balpalli.