SEBI's smart move

Mutual fund body AMFI has proposed a cap of 100 bps on upfront commission paid to distributors. Chandan Kishore Kant examines how SEBI managed to get its way without issuing a circular on its own

Back in 2009, U K Sinha, the then UTI chief (currently Sebi chairman) told Business Standard that the regulator needs to be open to criticism. The comment had come in the backdrop of Sinha's predecessor C B Bhave's decision of banning entry load on equity schemes.

The move had attracted widespread criticism from all stakeholders - including AMCs and distributors. And that phase lasted for not less than four long years. Even today, it is not surprising to see people wishing for a return of entry load, though in hushed tones.

Once again indusry is abuzz with the change in commission structure, capping the upfront payout at 100 basis points. But there is no room to criticise the capital market watchdog. This time, SEBI has not taken this decision but its the industry body, AMFI who have sent the proposal. 

This is being widely seen as the regulator's smart policy to get work done as per its wishes without issuing any official circular on the same. Though, pressure from Sebi on fund houses and its displeasure on higher commissions paid to distributors are well known and seem to have forced AMFI to propose the move. By pushing the ball in Amfi's court, Sebi has ensured that it does not attract wrath of the distributors and criticism from media.

Industry insiders say that Sebi was likely to come up with a circular on commission structure in January. But they were surprised not to receive it till now. According to them, Sebi was in two minds. First, the regulator realises that fixing commission quantum is not their job. It's up to the fund houses to do the needful. Secondly, the regulator was aware that the move, prima facie, will not be liked by the distributors as well as AMCs and feared a backlash as seen in 2009 when the regulator provided a meagre one month period for implementation of entry load abolition.

Sources say that Sebi in the meantime, had also approched Ministry of Finance about how to go ahead with the commission structure for mutual fund schemes. However the ministry was not much enthused as it did not want to single out mutual funds amid so many other financial products.

All said and done, the job is ultimately done. Now it has to be seen how seriously fund houses react to Amfi's last evening's proposal of capping up front and fixed trail commissions.