Prajna Capital - An Investment Guide

The securities market regulator, SEBI, has proposed radical changes in the way mutual fund distributors are compensated. SEBI seems set to enforce complete flexibility and transparency into the commission paid to the distributors. The changes are long-anticipated and many ways logical. However, they are likely to lead to a deep transformation in the way mutual funds are sold, and I think many distributors will find it difficult to adjust to the new regime. Mutual fund distributors (who are now euphemistically called Independent Financial Advisors-IFAs) are currently paid a commission by the Asset Management Company ( AMC ) whose funds are being sold. This commission is generally around 2-2.25 per cent for equity funds. This is deducted from the invested amount and the investor gets allotted that many fewer units of the fund. The distributor gets the commission from the AMC. Distributors are not permitted to refund any of the commission back to the investors. However, it is an open secr...