The mutual fund advisory committee of the Securities & Exchange Board of India (Sebi) met on Thursday to discuss the recommendations of the Sumit Bose committee on measures to curb mis-selling and rationalising distribution incentives for financial products.
The committee has recommended that upfront commissions for mutual funds be totally removed and a level playing field be created. Currently, upfront commissions are capped at 1% for mutual funds schemes.
The government set up a committee in November 2014 under the chairmanship of former finance secretary Sumit Bose. The panel submitted its report in August.
Dinesh Kumar Khara, MD and CEO at SBI Asset Management Companies (AMC), believes the committee has tried to bring in parity on commissions across financial instruments, and that it is in the right direction. “I would not like to comment specifically on mutual funds, but there should be enough remuneration for distributors since they are the ones who will take the products to investors.”
The Bose committee has also said the extra commission in B15 (beyond top 15 cities) should be removed and a level playing field be created. Manufacturers and distributors should, on their own, tap such unexplored markets to increase sales and market share.
In September 2012, the market regulator in order to re-energise the mutual fund industry allowed fund houses to charge an additional 30 basis points (100 basis points = 1%) in the total expense ratio if new inflows from B15 cities are at least 30% of gross new inflows in the scheme or 15% of the average assets under management, whichever is higher.
Players feel if this incentive is removed, fund houses will need to spend more in semi-urban and rural India to compensate distributors. “In the last three years after regulator came out with the move, we have started getting new set of investors from B15 cities. If there is parity then the focus would again shift to the top cities,” said a CEO on condition of anonymity.