Mutual fund agents request
SEBI to scrap commission disclosure rule
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.
Many 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be counter productive on all counts & must be withdrawn."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.
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