Keep fee within limits or face action, Sebi warns MF players

Sebi chairman U K Sinha domestic mutual fund distributors get one of the highest upfront fees in the world

Capital markets watchdog Sebi today came down heavily on mutual fund players over higher agency commissions they charge from customers, warning that if they don't behave, nothing stops it from taking punitive and corrective actions.

Noting that the domestic mutual fund distributors get one of the highest upfront fees in the world, Sebi chairman U K Sinha today asked the industry to keep such fees within "manageable limits" and behave in a self-disciplined manner lest they attract regulatory action.

Stating that the Securities and Exchange Board does not like to get into capping distributors' commission, he, however, said Sebi expects the industry body Amfi to introduce self-discipline for the industry, failing which there would be corrective action.

To buttress his point, Sinha reeled out numbers and said between FY14 and FY15, the revenue from MF distribution just doubled from Rs 2,500 crore in 2013-14 and crossed Rs 5,000 crore in 2014-15, while the industry growth has been not so robust.

"Sebi would not like to get into this area (commissions) at this stage," Sinha told reporters here on the sidelines of a CII-organised Mutual Fund Summit.

"We would like to believe that Amfi in their wisdom will be able to introduce some amount of self discipline. However, if we find that this not going to be the case, nothing stops Sebi from taking action," Sinha warned.

Sebi has time and again voiced its concerns over higher fees being doled out to mutual fund agents. A cap on agent commissions would help ensure a level playing field and curb instances of exorbitant payments.

The industry body Amfi had earlier this year announced that upfront commissions paid to distributors would be capped at 1 per cent from April.

Noting that the issue of higher commission is a matter of serious concern, Sinha said "not only Sebi but the whole government is worried about this and we have already set up a high powered committee to look into the type of cost and fees that are being charged to MF investors. So this is not an issue which an AMC can wish away."

"So I made it very clear to the fund houses that they should read the writing on the wall and introduce some self-discipline," he said.

The chairman also said that the regulator is committed to setting up an SRO (self-regulatory authority) to regulate MF distributors and will go ahead with the process once certain legal hurdles are cleared.