Sebi to impose curbs on payout to MFs

The fund houses have come under scanner for showering incentives on agents

Sebi to impose curbs on payout to MFs

“The Sebi committee will meet on Monday in Mumbai to take up the issue of expenses that MFs charge from investors annually,” a source told PTI.

The Sebi Mutual Fund Advisory Committee, comprising Sebi and MF industry people, is concerned that the fund houses are doling out lavish gifts to their distributors to encourage them bring in more business, the source said. Currently, the MF industry keeps its expense ratio at 2.25 per cent, which it deducts annually from investors’ net assets value (NAV).

“Sebi is of the view that the MFs should either bring down their expense ratio to 1.5 per cent and spend it as they want or cap its management expenses to 1.25 per cent and charge the remaining expenses at the rate of 1 per cent on actual basis,” the source said. The sources said that in the initial stages, the advertisement expenses of the fund houses are quite high which are recovered from the customers. Also, there are concerns that the MFs are spending too much on promotional expenses on products, which includes arranging foreign trips for distributors.

Further, the fund houses have come under the scanner of sebi for allegedly lavishing their agents and distributors with incentives like cash payouts and foreign junkets in return for higher sales. Instances of distributors of various fund houses being showered with cash incentives as also trips to exotic locations in India and abroad have come to light, especially since the scrapping of entry-load from investors last year. .The mutual fund distributors are said to be have been in a disarray ever since the fund houses were barred by Sebi from charging any entry-load from investors. Entry load is the commission that an investor has to pay while purchasing units of a mutual fund.

Further, the committee at its meeting in Mumbai will also will consider the issue of restricting MFs from selling an equity product that involves betting on future prices as it believes that this is not their core business.In a letter sent to all fund houses recently, Sebi had sought proposals from asset management companies (AMCs), regarding selling of equity options and an increased disclosure of their investment in this segment, sources in fund houses said.

The meeting would also deliberate on the issue of conflict of interest among trustees, AMCs and managements of the fund houses, where they feel there has been some overlapping issue.

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