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Asset management companies lured mutual fund distributors with not only high commissions but foreign trips and costly gifts. Now, however, the Association of Mutual Funds in India (Amfi) has asked fund houses to bring the “peripheral costs” attached to serving the distributor community under the distributable commission of the total expense ratio (TER).
In a circular titled ‘Amfi Best Practice Guidelines’, it defines ‘marketing support expenses’ for fund houses. These, it has said, would mean any expense, other than upfront commission or trail commission, reimbursed to the distributor or incurred for or on behalf of the distributor. Including gift vouchers, debit notes, event sponsorships and trips abroad, designed to incentivise sales, whether paid from the scheme(s) or the AMC.
However, trips for training programmes or meetings within India are excluded. Also, customary gifts during festivals cannot be now taken as part of marketing support expenses.
Going ahead, total distributor commission will be an aggregate of upfront commission, trail commission and marketing support expenses. Further, all these would be inclusive of service tax and any other applicable statutory levies, the circular adds.
Effective from Wednesday this week, the guidelines are applicable on all open-ended and closed-end schemes — liquid,debt and equity. These would not apply on exchange-traded funds.
Amfi has also asked fund houses to have audits of distribution and marketing support expenses. It says AMCs may rely on the certification provided by their statutory auditor.
In February, Amfi had asked fund houses to cap the upfront commission at 100 basis points, while the trail commission in the first year would be based on the balance of the TER, after deducting the upfront commission and operating expenses. This means there is no cap on trail commissions and AMCs will be free to decide how much commission these want to pay by way of trail, provided the amount remains consistent in subsequent years.
