AMFI tells MFs to stop non-financial sops to distributors
When initiating a study of the commission paid to mutual fund distributors by market regulator SEBI, attention was drawn to the non-financial incentives that mutual fund houses provide to their top performing distributors.
Based on their performance, a few mutual funds have moved distributors to exotic tourist locations under the pretense of a training program.
The distributors were ranked based on the number of new SIPs they registered in the last year and flown to tourist spots both in India and abroad, one distributor said on condition of anonymity.
In a letter to the mutual fund houses, the Mutual Funds Association of India said that “providing training programs to MFDs (Mutual Fund Distributors) based on achieving specific sales targets is not in line with the letter and spirit of regulatory guidelines and should not be permitted, the same has been adopted by the AMFI Board of Directors.
“All AMCs are advised not to incentivize MFDs by associating training programs offered to achieve SIP sales targets. Further, AMCs that have already launched (or propose to launch) any special SIP campaign under the Regular Plan, whereby MFDs are incentivized by training programmes, are required to Immediately withdraw these programs and send confirmation to AMFI.” .
SIP flows up
Total inflows through the regular investment scheme in mutual funds touched a new high of INR 1.56 crore after hitting a new financial high on a monthly basis.
Despite heavy recalls and outages, net inflows of SIPs increased by 77 per cent in the year ended March to INR 84,224 crore with new SIP registrations increasing steadily.
In fact, the net inflows accounted for 54 per cent of the highest ever total SIP inflows of Rs 1.56 lakh crore recorded in FY23, according to AMFI data.
Due to the declining volume of the mutual fund industry, SEBI recently suspended the special incentive of 0.30 per cent of the total expense ratio given to distributors for attracting investments of up to ₹2 lakh from outside the top 30 cities.
The B-30 incentive was banned after SEBI found distributors splitting large investments from smaller cities to less than $2 lakh to earn a higher commission. The distribution commission paid by mutual funds has increased to 55 percent of the expense ratio, up from 45 percent in the past three years.
Despite a ban on upfront commissions, distributor profitability has recovered at a compound annual growth rate of 30 percent since fiscal 2019 versus 15 percent for asset management firms, according to a recent study by institutional equity research firm Kotak.