AMFI warns mutual fund distributors against running contests for sales promotion

According to AMFI, the members have been misusing the relaxation provided in the AMFI advisory with respect to reward and recognition programmes run by MFDs to recognise their employees/sub-distributors for performance across multiple regulated financial products.

Moneycontrol had earlier reported that some mutual fund houses had conducted “training programmes” for their mutual fund distributors (MFDs) who achieve certain systematic investment plan (SIP) targets. The training was alleged to have been imparted in exotic locales such as Andaman and Nicobar Islands.

In a fresh letter to AMCs and MDFs, the industry body said that the board of AMFI, per guidance from SEBI, has been directed to revise the existing guidelines.

The fund houses and MFDs have been told to avoid making any payment as commission -- both upfront commission or that which can be deemed as upfront commission. The MFDs have also been asked to pay only trail commission to their sub-distributors.

“It is reiterated that as per SEBI Regulations, the AMCs can pay only trail commission to MFDs. Further, such trail commission should only be paid in monetary terms. All trail commission (including slab-based commission referred in point 3) should be disclosed on AMC’s website and in Half-Yearly CAS,” AMFI said in the letter.

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AMCs and MFDs have further been asked to refrain from offering any incentivisation to MFDs for achieving sales targets in kind, in the form of gift vouchers or actual gifts (such as electronic gadgets) or any form of entertainment, directly or through any associate/group company or the sponsor or the trustee of the mutual fund.

MFDs also cannot run competitive contests or incentive programmes to promote selective mutual funds schemes which could result in mis-selling.

As per the SEBI regulations, AMCs and MFDs are permitted to provide training to their empanelled distributors/ sub-distributors for knowledge enhancement and skill development.

“However, such training programs should not be misused for providing any reward or non-cash incentive to the distributors… also, the criteria / parameters for selecting distributors / sub distributors / employees of MFDs (EUIN holders) for such L&D / training programs should not be based on achievement of any sales targets, loyalty programs, etc,” the AMFI letter said.

The AMFI also reiterated that in case there is travel and stay requirement for organising such programmes, they should be a central and logistically convenient location within India and not at any exotic tourist destinations.

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“For avoidance of doubt, it is hereby clarified that such training/recognition programs shall not be held in any foreign country. The AMC shall not sponsor or fund any such training or recognition programs conducted by a MFD /ARN Holder to reward and recognise the performance of such MFD’s employees/sub-distributors,” the letter said.