Sebi seeks regulation on MF upfront commission

The Securities and Exchange Board of India (Sebi) will soon come out with regulations on payment of upfront commission on mutual funds that will essentially be principle-based and will follow a formula that can be easily monitored and enforced.

The move comes as the regulator wants to do away the practice of ‘high upfront commissions’ that is being paid to mutual fund distributors and to keep the difference between trailing and upfront commissions at 0.5 per cent. Trail commission is paid to a distributor every year on the value invested by a client and varies between 0.2 and 1 per cent.

The regulator raised the issue at a meeting of the advisory committee on mutual funds on Monday according to a source related to the development. The payment of high upfront commissions has seen distributors pushing investors to switch investments from one fund to another, which is a form of mis-selling.