Mutual funds to disclose distributor commission

MUMBAI: As per a SEBI circular, starting October, mutual fund houses will need to disclose the amount of actual commission paid to the distributors in absolute terms in the common account statement (CAS) that goes out to investors every six months. This amount of commission paid will have to be disclosed during the half- year period against the investors total investments in each mutual fund scheme.

The term ‘commission’ refers to all direct monetary payments and other payments made in the form of gifts / rewards, trips and event sponsorships etc. by AMCs/MFs to distributors.

Further, SEBI has allowed fund houses to mention in the CAS that the commission disclosed is gross commission and does not exclude costs incurred by distributors such as service tax (wherever applicable, as per existing rates), operating expenses, etc.

A section of distributors were battling this circular, as they felt that once an investor realizes how much commission a distributor earns, he may shift to cheaper direct plans, or ask for a passback of commission, which will reduce their margins. On the other hand, registered investment advisors (RIAs) favour this model, as they advice investment in direct plans and charge a fee for their services from the client directly.