Market regulator Securities and Exchange Board of India (Sebi), after directing Reliance Asset Management Company (AMC) to withdraw an advertisement for its newly-launched fund, is also looking at perquisites provided to distributors by various AMCs and also the new medium of procuring businesses, especially through mobile phones.
After the improved market condition in the past few months and streaks of new fund offers (NFO) lined up for the coming days, various AMCs have started wooing back distributors. And, in the bargain, have started going out of their way to appease distributors.
If officials from various AMCs are to be believed, then, in a major NFO recently by a leading AMC, distributors were paid 4-5% commission and it was a huge hit as it collected few hundreds of crores. And, though this can be construed to be within the limits of upto 7% expenses charegeable to the fund corpus in a new fund offer, the market is catching up and there are instances of AMCs going out of their way, said a senior Sebi official.
Also, appeasing distributors by the AMC is not a new practice, as previously major distribution house offered not only extra commission but also foreign junkets once every six months.
However, this practice was stopped post-October crises, but now as markets are slowly gaining momentum, AMCs have once again started luring distributors and by that way, investors.
Several players in the industry sense that this kind of benefits will be continued as it is said that mutual fund distribution in India is largely commission driven. Distributors, on the other hand, have started using innovative techniques to sell schemes. The mobile SMS is one such medium.
An SMS from a distributor to one of the investors read, ?Reliance launched NFO of Infrastructure Fund available @ 10/Rs only. If you are interested, plz revert, regards.? There was no disclaimer or warning that normally accompanies a solicitation like this.
?This could potentially be yet another meathod of misguiding investors as the SMS sounds like Rs 10 is a great offer while it is actually a normal practice, there is a case for examining this,? says the Sebi official.
Last week, Sebi had directed Reliance AMC to withdraw an advertisement for its newly-launched fund as it spends less time on risk warnings to investors than required and immediately, Reliance AMC had also revised the advertisement. The advertisement was of ?Infrastructure Fund? NFO which will be closed on June 23, 2009.
