SEBI stops mutual funds from paying transaction charges to distributors on ₹10,000 subscriptions

In a circular issued on Friday, the capital markets regulator said distributors should not receive such charges since they are already entitled to remuneration from asset management companies (AMCs).

“Based on the feedback received from the industry and considering that distributors as an agents of AMCs are entitled to be remunerated by the AMCs, the charges or commission, as prescribed under the paragraph 10.4.1.b and paragraph 10.5 of Master Circular, shall be done away with,” the circular stated, noting that a public consultation was held in May 2023, followed by an industry consultation in June this year.

Paragraph 10.4.1.b of the Master Circular says, “The scheme application forms shall carry a suitable disclosure to the effect that the upfront commission to distributors will be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor.”

Under paragraph 10.5, AMCs had been permitted to pay distributors ₹100 per ₹10,000 subscription from existing investors, and ₹150 for the same amount from new investors as an incentive to expand the investor base.

The revised rules take effect immediately.