Aggressive commission payouts create imbalance in the market: SEBI

In a recent meeting of Mutual Fund Advisory Committee (MFAC), SEBI has expressed its concern over unusually high commission payouts to distributors by select fund houses. In fact, the market regulator has asked AMFI to ensure compliance with the best practices circular among all its members in letter and spirit, confirm two officials who attended this meeting.

Sources said that the market regulator does not have an issue with the existing commission structure as such. However, at times, a few fund houses pay aggressive commission to distributors leading to sale of schemes that may not be suitable for investors. SEBI believes that higher commission payouts to distributors in a few schemes leads to mis-selling of mutual funds, he added.

“In my view, SEBI does not want to regulate business decisions. However, their concern was mis-selling of mutual funds due to aggressive incentives to distributors,” he added.

A CEO of mid-size fund house said that AMFI would take up this issue in the upcoming board meeting. He said that SEBI has also asked fund houses whether they were adhering to AMFI best practices circular on the commission guidelines.

Headed by former SBI Chairperson, Arundhati Bhattacharya, SEBI’s Mutual Fund Advisory Committee advises SEBI on the development, disclosures and regulatory aspects of the mutual fund industry. The committee has been instrumental in taking up many initiatives that have left a lasting impact on the industry.