Mutual Fund agents' upfront fee to be capped at 1 per cent

MUMBAI: A day after Sebi chairman U K Sinha sent a strong message to the mutual fund (MF) industry to reduce upfront commission, most members of AMFI, the fund industry trade body, agreed to cap it at 1% of the total amount that an investor invests in a scheme, effective January 1, 2016.

Upfront commission is the payment that a mutual fund agent or a distributor gets rom the fund house for sel ing an MF scheme to the investor. On Wednesday , AMFI members met in the city and decided to act on Sebi's suggestions. In the next few days, he AMFI board will take a final call on capping commissions, officials who attended he meeting told TOI.

Some mutual funds pay upfront commissions of as much as 6% in some closed-ended equity funds, and between 1% and 2% in equity unds. Market regulator Sebi eared that such high upfront commission could lead to misselling of mutual fund products and, hence, was insis ing on a cap on such payments. A few months ago, a government panel had also suggested rationalizing commissions for selling various financial products. The cap on upfront commission, ho wever, will neither benefit nor affect mutual fund investors, but will reduce the risk of them being induced to invest in unsuitable or wrong funds.

In comparison, commissions in the insurance industry could be as much as 35% for some products. The industry also witnesses a large num ber of cases of mis-selling, mainly because of the high commission structure.



On Tuesday, speaking at a corporate governance conference in the city, the Sebi chief had said that the regulator had already given “a long rope“ to the fund industry to agree to cap distributor commission.

He had warned that in case the fund industry didn't agree to such a cap, Sebi would step in to impose a rule. Recently , a Se bi official told TOI that if the regulator was forced to put a cap on upfront commission for selling mutual funds, for any subsequent changes, the industry would have to approach the regulator. In effect, such a step would have curtailed some of the quasi self-regulatory powers that AMFI now enjoyed, the official said.