Stringent norms in pipeline to weed out erring MF agents

The mutual fund space is set for a major overhaul in the way funds are sold to investors, with companies looking to weed out non-serious agents and those indulging in mis-selling activities.

Having already hiked the registration fees ten-fold, industry body AMFI is now in the process of bringing out some major changes in the registration and renewal norms for MF distributors, whose numbers currently stand over one lakh.

Sources said the Association of Mutual Funds in India (AMFI) will soon come out with the new norms and could ask distributors to comply with them from next month.
    
The new measures would include more stringent scrutiny of distributors at the time of registration as well as renewal through a Know-Your-Distributor (KYD) procedure on the lines of the Know-Your-Customer (KYC) norms followed by banks and other financial institutions, including MFs, for investors.
    
Previously, the grant of registration required a certificate for having passed an AMFI certification examination, two photographs and payment of the registration fee.
    
Pursuant to a directive from market regulator SEBI, the AMFI certification has already been replaced by a certification programme for distributors conducted by the National Institute of Securities Markets (NISM).
    
The new KYD procedure could also include giving all the distributors a biometric card after a stringent verification process that would look into the past record of the distributors to minimise the risk of mis-selling and other potential fraudulent activities, sources said.
    
The move follows the AMFI's recent decision to increase the one-time distributor registration fees to Rs 5,000 from Rs 500 and the renewal fees to Rs 2,500 from Rs 250.
    
The hike, although the first in eight years, is already being resented by distributors, who claim that it could further dent the growth prospects of the industry, which is currently reeling under redemption pressure, with a ban on entry loads last year already affecting their businesses.
    
AMFI, however, justifies the hike and says that it was necessary to meet the rising costs and would help in taking forward the cause of serious players.
    
"We have hiked the registration fees after eight years as the cost has gone up. I don't think serious players would be affected by the hike," AMFI Chairman A P Kurien told PTI.
    
"We will review the rates again in 2-3 years," he said.
    
There has been a concern that the distributors who were selling such products did not have an extensive knowledge and were in the business only to earn a short-term commission.
    
He said the hike could help curb mis-selling of MFs.
    
For the banks, non-banking financial companies, public companies and institutional distributors, the renewal fee has been raised to Rs 2.5 lakh from Rs 50,000. The registration fee for a new player in this category is now Rs 5 lakh.