Securities and Exchange Board of India (SEBI) has issued a circular clarifying certain provisions of its diktat issued on October 22, 2018. Association of Mutual Funds in India (AMFI) had requested SEBI to clarify and exempt from some of the provisions of this circular. In its reply to AMFI, SEBI said that fund houses can release the withheld commission (for claw back, ARN renewal pending, etc.) for sales happened before October 22 within three months subject to fulfilling all the requirements.
Further, SEBI clarified that systematic investment plans (SIPs) registered before October 22, 2018 will be taken into account for determining the total SIP inflows of up to Rs 5,000 for upfronting of trail commission. SEBI has mandated AMCs to adopt full trail model, except for SIPs from new investors in the industry. Till such mechanism is put in place to identify new investors at the industry level, distributors are allowed to get 1% upfronting of trail for three years at the AMC level for SIP of up to Rs 5,000 per month, per investor. This is allowed to be paid from AMC books. These new investors to the AMC are being identified based on Permanent Account Number (PAN).
SEBI has not accepted AMFI’s request of grandfathering upfront commissions on future installments of SIPs registered prior to October 22, 2018. Also, fund houses will not be allowed to honor any commercial commitments made to distributors prior to the circular issued on October 22, 2018. These are mainly related to upfronting of trail commissions.
Besides, AMFI had reportedly requested SEBI to introduce selling and distribution expense in direct plans which the regulator has not accepted. This was to cover AMC’s in-house costs incurred in selling direct plans.