Agent freebies: MFs under lens

NEW DELHI: Mutual fund houses have come under the scanner of market regulator Sebi for allegedly lavishing their agents and distributors with incentives like cash payouts and foreign junkets in return for higher sales.

Instances of distributors of various fund houses being showered with cash incentives as also trips to exotic locations in India and abroad have come to light, especially since the scrapping of entry-load charges from investors putting their money in mutual funds, a top Sebi official said. Besides finding such practices as unethical, Sebi is also examining whether these incentives are being funded by investors' money in the name of fund expenses, the official noted.

Strong remedial actions are said to be being contemplated for such practices and the market regulator might come out soon with appropriate guidelines in consultation with the industry body Association of Mutual Funds in India (AMFI) to tackle these issues, an industry official said.

A senior official at a leading fund house, however, defended the incentives saying such practices are prevalent across the various industries like pharmaceuticals and consumer goods where distributors are treated with much more expensive gifts and more frequent foreign trips.

The mutual fund distributors are said to be have been in a disarray ever since the fund houses were barred by Sebi from charging any entry-load from investors. This is said to have driven the potential investors towards now-controversial ULIPs (unit linked insurance plans) of the insurance industry where agents get hefty commissions for selling policies.