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Sebi today expressed concern over the disproportionately large amount of commission paid to mutual fund distributors, but the market regulator said it would be good if the industry puts a cap on the upfront fee.
Industry body Association of Mutual Funds of India (AMFI) plans to set 1% cap on upfront commission.
"Sebi would hesitate to directly prescribe the commission and would be happy if the industry does it. Sebi has a concern that if a disproportionately large amount of commission is being paid, and certain anomalies have crept up, Sebi is uncomfortable," Sebi chairman U K Sinha said when asked about AMFI's plans of capping one% upfront commission.
According to industry data, some banks are getting more than 50% of their brokerage commissions from single MFs, indicating a special focus on selective fund houses, which mostly happen to be their own group entities.
Market insiders say that MF houses are giving such high fees to distributors in order to attract more investors.
Earlier, AMFI voluntarily agreed that mutual funds would move to a trail commission structure after Sebi expressed concern over the rise in upfront fee paid to distributors.
The regulator is concerned over the issue as it could hurt the profitability of small fund houses.
There are a total of 45 mutual funds in the country and their total Average Asset Under Management currently stands at over Rs 12 lakh crore.
