SEBI mulls action against cash payouts, junkets for MF agents

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, the Securities and Exchange Board of India (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.

However, now when investors' responses are said to have turned lukewarm towards ULIPs, because of a soon-to-reach turf war between SEBI and insurance sector regulator IRDA over the issue of jurisdiction of such products, fund houses have started devising ways to lure back the investors.

With the aim of winning over the investors at a time when the industry is facing high rate of redemptions despite positive sentiments in the stock market, the fund houses are doling out lavish gifts to their distributors to encourage them bring in more business, a senior official at a leading fund house said.

As a result, a leading fund house recently took some of its high-yielding distributors to Kashmir valley, while one of its smaller rivals opted for backwaters of Kerala.

Not to be left behind, some other fund houses have either promised to take or have already taken to foreign junkets to places like Italy, Turkey, Malaysia, Hong Kong and Dubai their distributors who meet a certain target.