No more freebies to mutual fund distributors from AMCs

Exotic vacation, domestic and international, upgrading infrastructure, white labelled marketing material, etc. are some of the things which AMCs (Asset Management Companies) used to provide MFDs (Mutual Fund Distributors) to incentivise their achievement. But now mutual fund distributors are not going to get any such freebies from the AMCs.

A circular from SEBI (Securities and Exchange Board of India) dated October 22, 2018, with a circular number SEBI/HO/IMD/DF2/CIR/P/2018/137, stated that AMCs shall adopt full trail commission model for all the mutual fund schemes without payment of any upfront commission or upfronting of any trail commission directly or indirectly, in cash or kind, or through sponsorship or any other route. This means that any kind of sponsorship would be treated as an upfront payment and won’t be allowed.

As the awareness of investment in the mutual fund has increased in the past few years because of SEBI and AMFI initiatives, many AMCs started pushing new products and the competition amongst them increased. This led AMC to incentivise the mutual fund distributors to task them to achieve a higher number of sales. Unfortunately, this also led to mis-selling of mutual fund products. This is one of the reasons why SEBI has asked AMCs to stop such practices, in the interest of MF investors.