Mutual funds are on course to meet the 1 October deadline to disclose distributor commissions. In a circular issued on Tuesday, capital market regular Securities and Exchange Board of India (Sebi) reiterated its earlier stand that all fund houses will have to start disclosing the commissions that they pay to their distributors on investments in common account statements (CAS), on a half-yearly basis.
In a mild softening of its earlier stand though, it said that fund houses will need to disclose the total expense ratio of only those plans (regular or direct) that the investor has put money in. So if an investor has invested in a regular plan, then the fund house will need to disclose the expense ratio of only that regular plan in the CAS, and not the direct plan.
In the earlier circular issued on 18 March, where the guidelines for commission disclosure to be made in CAS were laid out, Sebi had said that fund houses will have to print the total expense ratios of direct plans also, even if the investor opted for a regular plan. “This has resulted from our representation that the mutual funds industry had made to Sebi earlier to explain that if investors invest in regular plan (through their distributor), there’s no need really to print the expense ratio of the direct plan. That request has been accepted,” said A. Balasubramanian, chief executive officer, Birla Sun Life Asset Management Co. Ltd. Balasubramanian added that the delegation had also requested Sebi to reconsider its decision to do away with the need to disclose distributor commissions in absolute (rupee) terms, “but that request appears to have been denied”.
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When Sebi had said that fund houses will need to disclose distributor commissions in rupee terms, instead of percentage terms, the distribution fraternity had gone into a tizzy. Many distributors at the time felt—and still do—that commissions should be disclosed in percentage terms. “When equity markets go down—and make no mistake that it will, someday—an investor’s CAS would show the value of his investments drop but not necessarily her distributor’s commissions, which will be disclosed now in absolute terms or in rupee terms. Now, in these times, the investor should be sticking to her distributor and ensuring that she continues to stay invested, or better still, invest more. Instead, she could pay more attention to the fact that the distributor has earned the commission despite the fall in her investments’ value. This could be misleading,” said Amol Joshi, founder, PlanRupee Investment Services.