Overseas training or vacation? Sebi puts kibosh on MFDs' foreign 'perks'

Amfi's hammer fall: No 'incentivisation programmes' beyond Indian shores

Certain mutual fund distributors (MFDs) have been offering foreign trips to their sub-distributors under the guise of ‘training programmes’ despite clear guidelines against it, the Association of Mutual Funds in India (Amfi) said in a letter to fund houses and MFDs.

The industry body added that the regulator, the Securities and Exchange Board of India (Sebi), has taken the issue seriously and called for an appropriate deterrent mechanism.

“It is observed that despite very clear Amfi guidelines to deter and avoid incentivising the distributors/sub-distributors for garnering higher business by way of foreign trips or trips to exotic tourist destinations, such incentivisation programmes were still being launched by certain MFDs,” Amfi stated in the letter.

Training programmes for MFDs have drawn the regulator’s ire on several occasions in the past as mutual funds (MFs) used them to reward their top business partners through paid international and domestic holidays.

In January this year and again in April 2023, Amfi had written to MFs to desist from such programmes after some instances came to light. This is likely the first time that such programmes organised by MFDs themselves for their sub-distributors have come to light. Some distribution firms employ sub-distributors through a profit-sharing model.

Earlier this month, Sebi Chairperson Madhabi Puri Buch clarified that the narrative that MFDs are not regulated by Sebi is not true. She stated that an MFD is an agent of the fund houses, similar to an employee, so if there is mis-selling or false advertising, the asset management company is liable.

“If the agent does something that the MF is not permitted to do, the MF is responsible and liable, and we will enforce our regulations against them,” she said.

Along with the warning letter issued in July 2024, Amfi has released revised guidelines for MFDs, emphasising that they cannot hold training programmes in any foreign country. It has also been stated that MFs cannot sponsor or fund any training or recognition programmes conducted by an MFD to reward and recognise the performance of their employees or sub-distributors.

The issue has surfaced at a time when MFs have been launching back-to-back new fund offerings amid a market bull run, leading to higher competition among fund houses to attract inflows through MFDs.

Banks and MFDs remain key to MF distribution, despite online platforms making huge strides after the pandemic.

Regular plans of MF schemes, which are mostly sold by banks and MFDs, account for nearly 80 per cent of non-institutional assets with MFs.

NO MORE FREE RIDES

NEW FLIGHT PLAN: Revised Amfi guidelines for MFD training programmes

·         Grounded costs: MFDs can conduct training for employees and sub-distributors, provided the expenses are reasonable

·         No exotic layovers: Training must be held within India, excluding exotic tourist destinations

·         Funding freeze: Asset management companies cannot sponsor or fund any such training programmes

·         Strict penalties: Violations can lead to dis-empanelment or cancellation of registration