A slew of reforms unveiled by the Securities and Exchange Board of India (Sebi) last week to revive the mutual fund industry are set to alter the way commissions are paid to MF agents in the country.
“With the changes introduced by Sebi, there are bound to be some changes in the commission structure. This means we can see the trail commissions for distributors going up. The idea behind this will be to incentivise distributors who are able to retain customers for long,” said Dhirendra Kumar, CEO of Value Research.
The market regulator has mandated the asset management companies (AMCs) to plough back the exit load charges back into the scheme instead of the current practice of AMCs using it to defray expenses and pay commissions.
Exit load is a fee charged by AMC to investors for making redemptions before schedule and is aimed at discouraging early withdrawals. For exiting before one year, an equity fund typically charges 1% of the investment, while for the debt fund, it is 0.25% to 1% depending on the timeframe.
The upfront commissions currently range between 50 and 150 basis points (bps) of the investment (one basis point is one hundredth of a percentage point).
