The Association of Mutual Funds in India (Amfi) on April 27, 2023 sent an email to asset management companies asking them to stop offering training programs to mutual fund distributors in exotic locations.
Mutual fund houses regularly conduct training programs for distributors and advisors, but market regulator, the Securities and Exchange Board of India (Sebi) has repeatedly clarified that such training programs should not be linked to meeting the systematic investment plan (SIP) sales targets.
Now, according to a report in Moneycontrol, some of these training programs were allegedly offered by fund houses to mutual fund distributors who had achieved certain SIP targets. Moneycontrol claims of having documentary proof of such training programs at exotic locations like Andaman and Nicobar Islands.
The report quoted anonymous industry officials as saying that higher the inflow threshold, the more exotic the training program location.
Mutual Fund Distributors & Incentives
Mutual fund distributors earn commissions from buying and selling mutual funds. The AMC pays commissions to them, but to avoid mis-selling, Sebi has directed AMCs to pay only trail commissions. So, mutual fund distributors get paid as long as investors stay invested throughout their tenure.
Also, in 2018, Sebi banned fund houses from taking any scheme-related expenses on their own books. It mandated that all expenses should be charged to a scheme’s maximum total expense ratio.
The AMCs are also prohibited from offering their distributors rewards, such as holidays in exotic locales, a practice that was prevalent earlier until Sebi cracked down on it.
Industry Response
Amfi has now sent out a letter to mutual funds stating that “providing training programs to mutual fund distributors based on achievement of specific sales targets is not in line with the letter and spirit of regulatory guidelines and should not be allowed, and the same has been endorsed by the Board of Amfi.”
“All AMCs are advised against incentivising MFDs by linking the training programs being offered to meeting the SIP sales targets. Further, AMCs that already have launched (or propose to launch) any special SIP drive under the regular plan, wherein the MFDs are incentivised by way of training programmes are requested to withdraw such programmes forthwith and send a confirmation to AMFI,” it added.
According to Moneycontrol, Aditya Birla Sun Life Mutual Fund, Tata Mutual Fund, WhiteOak Capital Mutual Fund and DSP Mutual Fund had launched such training programs. Moneycontrol said in its report that WhiteOak MF and Tata MF declined to comment, while the others did not respond.
According to industry experts, training or educational sessions for distributors are important for the overall growth of the mutual fund industry and there shouldn’t be any contest or competition as entry criterion for a training. They further say that some sessions may be held at exotic locations because an institute there provides excellent training, and so all such training shouldn’t be generalised
