Sebi warns about MF distribution practices

Says distributors' revenue has increased from Rs 2,500 cr to Rs 5,000 cr

The Securities and Exchange Board of India (Sebi) today raised a red flag over distribution practices governing the mutual fund industry.

Speaking at the CII's Mutual Fund Summit in Mumbai, Sebi Chairman UK Sinha cited a survey of 25 jurisdictions. He said distributor commissions were over 2% in four of them and India was in the group of countries which had higher commissions.

Sinha pointed out that distributors earned Rs 2,500 crore in revenue earlier, which has now increased to Rs 5,000 crore.

Sebi was on the verge of regulating distributor commissions, but mutual fund industry body AMFI indicated that it would try to arrive at a consensus on paying lower commissions.

Sinha also came down on the manner in which MFs conduct investor camps. He said that Sebi found lacunae in many such meets. In fact 6% of these meets were conducted for distributors rather than investors, he said.

He also noted that distribution paradigms are changing, with Rs 133 crore of MF sales happening through mobile phones now.

Sinha also raised a point on inter-scheme transfer in mutual funds. These are not taking place as per Sebi regulations, he said.

He also said that a recent order on money laundering through the stock exchange platform is not the end of the matter.

"Sebi has a very effective surveillance system...this is an ongoing process," he said.