Agents must disclose fees that MFs pay

MUMBAI: In a move that will ensure greater transparency in the way mutual fund schemes are sold to investors, Sebi is proposing to make it mandatory for distributors to disclose the commission they are paid by mutual fund houses. The regulator is also proposing a variable load structure, wherein investors can decide on the commission they are willing to pay to the distributor.

A load ��� entry or exit, as the case may be ��� is the charge that investors have to pay to the asset management company while buying or selling mutual fund units.

Under the current practice, investors in equity schemes are charged an entry load of around 2.25% by the AMC. This amount is deducted from the investor���s subscription amount.

In addition, the AMC is free to pay the distributors any commission they feel is appropriate . According to Sebi, investors are at a disadvantage as they have no control over what they pay for the advice rendered to them.

The Advisory Committee of Mutual Funds has suggested for a separate section in the application form, wherein investors can indicate the commission payable to the distributor and which would be jointly signed by the investor and the distributor. The AMC would then deduct the amount payable and pay the distributor.



Alternately, investors could issue a separate cheque to the distributor towards commission. In the second option, the investor would issue two cheques ��� one for the investment in the MF scheme and the second in favour of the distributor for the agreed commission. In both the above options, the process for making the investment application remains the same, except for the entry load being decided in terms of the agreement between the investor and the distributor.

Meanwhile, Sebi has also questioned the advisory services rendered by the distributors as the commission paid by the fund houses (to distributors) differs across schemes. Due to such variations, the question arises as to whether the advice rendered is in the interest of the investor, or whether it is influenced by the quantum of commissions, notes the Sebi release.

Market participants can submit suggestions before March 6.