MF distributors to get trail commissions for investor asset transfers

Mutual fund distributors will now have the opportunity to receive trail commissions from Asset Management Companies (AMCs) for assets transferred by an investor from one distributor to another.

This change follows numerous requests from Mutual Fund Distributors (MFDs) to review the current AMFI Registration Number (ARN) transfer norms.

These norms currently prevent AMCs from paying trail commissions to the new distributor when an investor transfers their assets to a new MFD.

In a communication to its members on Tuesday, Association of Mutual Funds in India (Amfi) permitted AMCs to pay trail commission to distributors in case a client transfers his assets from one distributor to another.

However, AMCs can only pay trail commission after cooling off period of six months from the date of transfer of assets by investors.

"In respect of change in distributor/ ARN code initiated by the investor, the AMCs may consider making payment of trail commission to the transferee distributor after a cooling off period of six months from the change of distributor code in the unitholder database," the industry body said.

Further, It said that the payment of commission to the new (transferee) distributor would be based on the lower of the commission rate of the transferor and the transferee distributor.

The mutual fund body further clarified that apart from trail commission, no other payments of any kind, including incentives, will be made regarding changes in the distributor.

The industry body Amfi noted that the current ARN rule was introduced over a decade ago to curb certain market practices prevailing then, which may no longer be prevalent, and also since the transferee mutual fund distributor provides the same level of support and service to the concerned investors on the transferred assets.