Mf Investors Dump Agents Over Rebating Ban

The ban on rebating of commissions by distributors of mutual fund products has taken another turn with investors switching distributors mid-way.

Distributors who have stopped rebating are crying foul, insisting that investors cannot switch distributors during the currency of their investment.

Investors who are not concerned about the code of conduct, feel they have been deprived of returns by way of commissions and are exercising their fundamental right of finding alternative distributors who would still be paying them a commission. Many of the major funds are not interfering with the preferences exhibited by investors on the grounds that they had a right to it.

 

The Association of Mutual Funds of India (Amfi) has taken a serious view of the matter and, in a note at a recent meeting, has suggested that investors wishing to change distributors should give it in writing that they are not satisfied with the services of their distributor and so on.

Further, it said, mutual funds should be more careful and not allow indiscriminate switches by investors as it would encourage rebating.

Incidentally, funds and their senior executives have also been told to indemnify themselves in the event of any cases being filed against them by their distributors for breach of agreement.

Distributors have told the funds that such shifts are detrimental to their interest and they should prevent investors from doing so. According to the sales head of a leading private sector fund, this has the potential to snowball into a major crisis as distributors have taken the view that investors are violating the tripartite agreement between the fund, investor and the distributor.

"They may take legal recourse," he said. "They have taken the view that mutual funds are under a contractual obligation not to allow such things to happen. Distributors have said that in case the investor wanted to shift to another distributor, they should first liquidate any investments they have made through the first distributor and also take a no objection certificate from the latter."

Industry sources said it was not a case of merely one or two investors changing distributors but there were mass shiftings from one broker to another.