You have the right to know your distributor’s commission
Sebi has made it mandatory for all MF distributors to disclose commissions they get on schemes
If you invest in mutual funds (MFs) through any distributor, you have the right to ask her and know how much she earns from you. In 2009, the Securities and Exchange Board of India (Sebi) made it mandatory for all MF distributors to disclose all types of commissions they get on schemes that they sell as well as those of competing products.
Different ways of disclosing
Many distributors prefer to put commission details on their own websites for those who are interested in going through. Some such as Hongkong and Shanghai Banking Corp. Ltd (HSBC)—one of India’s largest MF distributors—discloses commissions on its website for only those fund houses whose schemes it sells. HDFC Bank Ltd—another large MF distributor—gives commissions category-wise.
Fund houses update commission details once in a quarter or six months, typically. In some cases, changes happen sooner than that. Typically, a fund house decides the broad range that they want to pay distributors, either scheme-wise or category-wise. Larger chunks go to key or large distributors, what’s left goes to smaller distributors. The fund house then emails these details to all distributors who are empanelled with it. Some financial planners and distributors merely upload all these emails on their websites to comply with the Sebi guidelines.
Teething problems
Although Sebi has specified about disclosure of commissions on competing products, it has not defined what a competing product is. So if it’s a large-cap equity scheme that you wish to buy from your distributor, should your distributor then show you the commission that she could get across all equity schemes or those with a common benchmark index or those classified by any one or two mutual fund tracking firms? Some planners merely upload all commission-related emails from all fund houses they are empanelled with on their website without classifying who competes against what. Then again, you may have parked your cash temporarily in a liquid fund for, say, just 20 days in the entire year. Should you distributor then send you the commission details of all liquid funds? These are some of the teething problems that make this rule’s implementation tedious. Still, it’s good to know that it’s your right to ask your distributor.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!