AMFI says 17 mutual fund distributors earn commissions above Sebi’s cap. But is the data accurate?

A recent disclosure by the Association of Mutual Funds in India (AMFI) revealed that several mutual fund distributors (MFDs) appear to have earned commissions above the 2% cap imposed by the Securities and Exchange Board of India (Sebi). According to the data, at least 17 distributors had commissions that exceeded the regulatory limit, raising eyebrows within the industry.

However, many distributors have disputed the data, claiming their earnings were within permissible limits. One distributor explained that the reported assets under management (AUM) data was incorrect, and all commissions received for mutual fund distribution were in line with the Sebi regulations. 

Another distributor said their commissions remained within Sebi cap, with the confusion possibly arising from recent corporate restructuring, which involved the merging and demerging of several legal entities within their distribution business.

In response to Mint’s queries, AMFI said that while it consolidates and publishes data from mutual fund companies, it is not involved in their day-to-day operations and does not verify the data provided by individual asset management companies (AMCs). This clarification suggests that any discrepancies in the figures could stem from data entry or reporting issues at the AMC level.

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The AMFI data, although intended to increase transparency, may not always accurately reflect actual commission earnings due to factors such as reporting errors, fund restructuring, or consolidation of multiple AMFI registration numbers (ARNs) under a single group. As many distributors have clarified, it’s possible that the data is not up to date or has not factored in specific nuances of the industry, leading to apparent discrepancies.

The issue raises a broader question: how reliable is the data that’s used to ensure compliance with Sebi’s commission cap, and what processes are in place to address potential inaccuracies? As commission disclosures are meant to safeguard investors and promote fairness, it’s important to ensure that the data is accurate and reflects the true state of affairs.

Why is accurate data critical?

Accurate commission data is essential for several reasons. First, it helps maintain trust and transparency in the mutual fund industry. Distributors operate under strict regulations, including Sebi’s cap on commissions, which is designed to protect investors from excessive fees that could erode their returns. When commission data suggests that distributors are earning above the regulatory cap, it could lead to unnecessary scrutiny, casting doubt on the integrity of both the distributors and the regulatory system itself.

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For mutual fund distributors, incorrect data can damage their reputation. These distributors play a key role in advising and guiding retail investors, and any perception that they are flouting Sebi rules can cause investors to lose confidence in them. As the backbone of mutual fund distribution in India, these firms rely on transparent practices to build and sustain relationships with investors. Publishing inaccurate or misleading data can undermine their business and lead to compliance investigations, even when the issue may simply be due to reporting errors or structural complexities.

For investors, transparent and accurate disclosure of commissions helps them make informed decisions about their investments. High commissions can reduce net returns, so it is crucial that investors trust that the commissions disclosed are in line with regulatory guidelines. Any perceived inaccuracy in disclosures could reduce participation in mutual funds, a key investment vehicle for millions of Indians.

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Moreover, publishing accurate data ensures that the broader mutual fund ecosystem — which includes distributors, AMCs, regulators and investors — remains aligned with regulatory expectations. Errors or inconsistencies can distort the picture of how well the industry is adhering to Sebi norms and could potentially delay reforms or lead to ineffective regulatory responses.

As more mutual fund distributors clarify their positions, it could become apparent that the discrepancies in the AMFI data were the result of incomplete or outdated information. Until the process is reviewed or updated, investors may need to interpret such disclosures with caution.