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Entry Barriers to Quick Money

Diversification is not just for investors but also for distributors, says AMFI

No more commission for you. That's what SEBI and AMFI have been saying to investors for the past year or so. And now the noose is tightening around corporates who are still trying to circumvent AMFI and Sebi's directive.

In the case of corporates, where the transactions are very large, commissions make up a significant sum in absolute terms. As SEBI had banned the payment of passbacks, many corporates had devised an ingenious way to circumvent this. All it required was that the broker would be a part of the corporate entity. So there would be no need for the broker to "actually pass back the commission as it would already be with the corporate". This was a perfect way to circumvent the guidelines as the only qualification required to be a broker was that the person should be AMFI certified.

But AMFI has woken up to this practice. It has directed that corporate mutual fund agents empanelled with an AMC would be required to have at least 100 investors from non-associates (i.e., subsidiary and holding companies). Alternately corporate agents should have at least Rs one crore of assets under management, which are not from associate companies, within one year of being empanelled. Furthermore, during a 12 month period from the date of empanellment if 75 per cent of the gross funds mobilised from a corporate entity are from its associated entities it would then have to provide a certificate that it serviced at least 200 non associate investors in that year.

Such strictures also apply to individual agents. They should service at least 12 investors with the empanelling AMC in a year. If individual agents cannot mobilise such volumes they would have to provide an undertaking to the AMC to service at least 25 investors across all mutual funds. Failing to honour this commitment will mean that they will not be able to receive brokerage from the AMC.