Opposing the mandatory disclosure of commissions paid by mutual funds (MFs) to distributors, agents selling such financial products have requested regulator Sebi to scrap the directive saying it would be detrimental to the growth of the industry.
For greater transparency in dealings of mutual funds, Sebi had asked MF houses to disclose to investors the commissions paid to their distributors, including payouts in the form of gifts, trips and sponsorships from October in the consolidated account statement (CAS) sent to investors.
Several mutual funds’ distributor associations including Financial Intermediaries Association of India (FIAI) said the circular on “commission disclosure is more likely to be counter productive on all counts and must be withdrawn.”
They said such disclosures are selective and will provide information which is incomplete and not relevant and will mislead the investor to make wrong choices.
“This will be harmful to the investor, detrimental to the growth of the industry,” distributors said.
In addition, it will make a negative impact on retail investors and eventually hurt growth of the mutual fund industry.
“Retail investors are not going to magically dream up the knowhow required to become direct fund investors. If they do or are prompted to do so, then there will be dire unintended consequences. There is a huge (and crying need) for expanding mutual fund investments in India and the independent fund distributor is a crucial part of realising this potential,” they said.
They further said, “disclosure of distributor commissions on an ongoing basis will lead to unethical practices of pass backs. The regulation will lead to use of corrupt and illegal practices.”
Most global markets like the US do not have disclosure of commission amounts in account statements.
Terming the regulation as unfair, distributors said regulations are made without any engagement with the stakeholders.
The regulations are also unfair in treatment of mutual funds relative to other investment products like bank deposits investment-linked life insurance plans as such disclosure is not required for other financial products.
“The current regulations widen the regulatory arbitrage thus the regulations clearly harm the development of the mutual fund industry vis a vis life insurance, bank deposits, gold,” the associations noted.