Sebi wants AMCs to keep an eye on big distributors

The Securities and Exchange Board of India (Sebi) has put the onus of regulating large mutual fund distributors on asset management companies. The regulator, in a circular on Monday, said mutual funds, before empanelling distributors, will have to ensure that the sales process of distributors is delinked from their customer-risk evaluation team.

The Sebi circular said distributors' advisory process should be different from the sales, while defining the principle of 'appropriateness' of products to customer categories. "Appropriateness is defined as selling only that product categorisation that is defined as best suited for investors within a defined upper ceiling of risk appetite," it said.

The distributor has to keep a record of a written communication of its advice to its client in case a product is not suitable for him, the circular said. "A customer confirmation to the effect that the transaction is execution only notwithstanding the advice of in-appropriateness from that distributor be obtained prior to the execution of the transaction," the regulator said.

Fund houses will also have to disclose, on their respective websites, the total commission and expenses paid to those distributors who have point of presence in more than 20 locations and have received commissions of over 1 crore on an annual basis across industry.

Besides, to help retail investors understand the performance of schemes in a better way, mutual funds will have to give point-to-point returns on a standard investment of 10,000 in addition to CAGR (compounded annual growth rate) for a scheme in existence for more than three years. "When the performance of a particular mutual fund scheme is advertised, the advertisement shall also include the performance data of all the other schemes managed by the fund manager of that particular scheme," Sebi said.

Source: http://economictimes.indiatimes.com/markets/regulation/sebi-wants-amcs-to-keep-an-eye-on-big-distributors/articleshow/9700944.cms

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