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Dim view on mutual fund rebates

Calcutta, Nov. 22: Banks and corporate distributors of mutual funds should take the initiative to stop ‘rebating’ — the practice of sharing the commission given by the asset management company, with the investor.

Following the directive from the Securities and Exchange Board of India (Sebi), distributors cannot legally dish out incentives for investing in mutual funds, but implementing the norm could be difficult.

S. K. Mitra, a director of Birla Sun Life Mutual Fund and a prominent figure in the Association of Mutual Funds in India (Amfi), says the initiative to stop the practice should come from banks and corporate distributors — those that can afford to lose some investors for a short while.

Mitra says the shareholders of asset management companies also have a role. “If the only yardstick for assessment of performance of the sales force is growth of asset under management, you cannot do away with ‘rebating’.”

However, even with the best efforts, it may be impossible to stop the practice. “Notwithstanding a stricter regulatory framework, ‘rebating’ has not stopped in insurance. It hasn’t in small savings either,” Mitra says.

Mitra said he was sceptical about Amfi adopting the role of a self-regulatory organisation, though he is the chairman of the committee looking into the matter. “Sebi wants Amfi to adopt a regulatory role as fast as possible, but there are lots of issues,” he said.

“Do you think Amfi can punish a member for wrong-doing' Amfi cannot do the policing though it may be better equipped as a regulator. But Sebi is insisting we take that role, and it seems a self-regulator may be required,” he added.

Speaking on his own mutual fund, Mitra said Birla Sun Life was planning to appoint Deutsche Bank or JP Morgan for fund accounting — the calculation of net asset value.

Birla Sun Life runs 16 schemes and manages close to Rs 6,000 crore.

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