Dave panel delves into MF-corporate nexus, variable fee

Written by Markets Bureau | Mumbai, Aug 27 | Updated: Aug 28 2008, 06:24am hrs
The Sebi Mutual Fund Advisory Committee (SMFAC) met for the first time, since its formation last week, to put the reforms in the mutual fund (MF) industry on track. The committee discussed various current issues related to the MF industry including variable distribution commissions and a transparent fee system for financial planners.

Speaking to FE after the meeting, sources said the panel also discussed the progress of the move to stop the nexus between fund houses and large companies in liquid-plus funds, as reported by FE on Wednesday.

The SMFAC is led by SA Dave, former chairman, Sebi and Unit Trust of India and has representatives from Association of Mutual Funds in India (Amfi) and other fund houses. The committee discussed at length on how to address the problem of distribution commission which has been alleged to be high at present. The committee also explored the possibility of introducing a variable distribution commission regime which is prevalent in Australia and other parts of the developed markets. Currently, the regulation allows the fund houses to pay upto 2.25% as a commission to the distributors. If the variable commission is allowed, then it will allow the distributors to charge commission from the investors based on the size of the investment, the service offered by distributors and the inter-personal relationship.

Amfi will put out a report on this, as a lot of data on this is to be collected. The report should be ready within a week or so, sources said.

The committee has also taken note of the commission that financial planners charge from the retail investors. The committee felt the need for transparency in the commission charged by the financial planners. The next meeting of the committee will be held in a months time.