 "mutual fund personal finance")
Some fund houses have come under the radar of the Securities and Exchange Board of India (Sebi) for offering sponsored trips to mutual fund distributors (MFDs) as a sales-boosting incentive, said people in the know.
The regulator has passed on the information to industry body Association of Mutual Funds in India (Amfi).
It has written to asset management companies (AMCs) for the second time in 10 months, telling them to refrain from such practices.
“Sebi has brought to our notice that (once again) there seems to be promotions and contests being run by certain AMCs, whereby MFDs are being offered incentives or reward trips on achievement of certain business volumes beyond the commission payable,” Amfi said in a letter dated January 9.
Regulations do not allow MFs to incentivise MFDs by any mode other than commissions. However, some fund houses have been taking MFDs on trips under the garb of ‘training programmes’.
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Incentivising MFDs with such reward trips based on achievement of specific sales targets is not in line with the letter and spirit of regulatory guidelines. It should be totally avoided, Amfi said, asking industry players to withdraw such incentive programmes.
The association has also asked fund houses to "keep their respective AMC boards and trustees apprised of the above advisory.”
Sebi frowns upon such sales target-based sops to distributors as it could potentially lead to mis-selling.
In 2018, it had released a circular stating that training programmes should not be misused for providing any reward or non-cash incentives to distributors.
In April 2023, Amfi had written a similar letter to fund houses after such incentive programmes came to light.
At that time, the association had advised MFs against incentivising MFDs by linking the training programmes to meeting SIP sales targets.
Even as the 'direct' distribution channel has picked up post Covid, MFs still rely heavily on MFDs to take their products to investors.
As of November 2023, close to 80 per cent of the retail and high net worth (HNI) assets being managed by MFs had come through the MFD channel.
Outside the top 30 cities, the dominance is even higher.
In beyond 30, or B-30 areas, MFDs have 83 per cent share in the total individual AUM.
With the growing number of fund houses and rising interest in B-30 areas, there is intense competition among fund houses to establish better connect with MFDs, say distributors.
