AMFI asks fund houses to stop training programmes based on SIP targets for distributors

SEBI in 2018 had said that training programmes should not be misused for providing any reward or non-cash incentives to mutual fund distributors.

Hours after Moneycontrol reached out to it for a response on the so-called ‘training programmes’ being offered by certain asset management companies (AMCs) to their distributors, the Association of Mutual Funds in India (AMFI), the trade body representing the Rs 40 lakh crore Indian mutual fund industry, sent an email to its members asking them to desist from offering such programmes.

The training, which is alleged to have been imparted in exotic locales such as Andaman and Nicobar Islands, is offered by fund houses to mutual fund distributors (MFDs) who achieve certain systematic investment plan (SIP) targets.

The AMCs are barred from offering their distributors rewards such as holidays in exotic locales, a practice that was prevalent earlier until market regulator Securities and Exchange Board of India (SEBI) cracked down on it.

AMFI declined to comment on the matter.

Moneycontrol had earlier learned that mutual fund houses such as Aditya Birla Sun Life Mutual Fund, Tata Mutual Fund, WhiteOak Capital Mutual Fund and DSP Mutual Fund, had launched these training programmes for their distributors.

AMFI, in a communication to fund houses late in the evening on April 27, said that certain AMCs have launched special SIP drives under regular plans for a specific period, and MFDs are offered training programmes at zonal or national locations, based on the number of SIPs or incremental value of SIPs mobilised from T-30 or B-30 locations with certain minimum targets.

T-30 refers to the top 30 geographical locations and B-30 to locations beyond top 30.

Moneycontrol has copies of the incentive-based training programmes that these fund houses had circulated to some of their distributors.

For instance, one fund house offered training programmes at three locations; known as ‘Training 1’, ‘Training 2’ and ‘Training 3’. One seat at the ‘Training 1’ centre was offered to those distributors who received SIP inflows of Rs 1.5 lakh from B-30 location.

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Higher the inflow, the more exotic the locations

However, a seat at ‘Training 3’ was offered for SIP inflows for Rs 4.50 lakh. Moneycontrol couldn’t verify the locations of these training programmes. But industry officials, who refused to be identified, said that the higher the inflow threshold, the more exotic the training programme location.

Another fund house’s brochure had identified four training centres, named A, B, C and D. To qualify for Centre A, the distributor had to get SIP inflows worth Rs 4 lakh, between March 1 and June 30. If the distributor gets SIP inflows worth Rs 3 lakh, she qualifies for training in Centre B.

Training or incentives?

To be sure, mutual funds conduct training programmes for distributors and advisors at all times throughout the year. However, till a few years back, many fund houses also used to take distributors on expensive foreign holidays and junkets, if they brought in inflows beyond a minimum threshold.

The capital market regulator, the Securities and Exchange Board of India (SEBI), had frowned upon this practice as it observed that MFs could be mis-sold by distributors eager to go on such exotic junkets.

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In 2018, SEBI issued a circular that brought about more transparency in the way fund houses charged expenses to investors. It banned fund houses from taking any scheme-related expenses on their own books and instead mandated to charge all expenses to a scheme’s maximum total expense ratio or TER.

It banned upfront commissions and exhorted fund houses to charge through trail commission, where distributors get paid for as long as investors stay invested throughout their tenure.

But more importantly, it said that training programmes "should not be misused for providing any reward or non-cash incentives to distributors.” In simple words, it meant that training programmes should just be a way to impart training.

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What are fund houses saying?

Moneycontrol reached out to fund houses for comments. A spokesperson from WhiteOak MF and Tata MF, respectively, declined to comment.

But industry officials tell us that WhiteOak MF has already withdrawn the scheme. Aditya Birla Sun Life MF and DSP MF have not responded to our questions at the time of publishing this report. Moneycontrol will update the report when their comments come in.

Moneycontrol had also reached out to AMFI on April 27. AMFI did not comment, but instead issued an advisory to mutual funds, nudging them to stop such practices. Notably, it issued this advisory after Moneycontrol reached out for comments from fund houses.

In its letter to mutual funds, AMFI said that “providing training programmes to MFDs (mutual fund distributors) based on achievement of specific sales targets is not in line with the letter and spirit of regulatory guidelines and should not be allowed, and the same has been endorsed by the Board of AMFI.”

“All AMCs are advised against incentivising MFDs by linking the training programmes being offered to meeting the SIP sales targets.  Further, AMCs which already have launched (or propose to launch) any special SIP drive under the Regular Plan, wherein the MFDs are incentivised by way of training programmes are requested to withdraw such programmes forthwith and send a confirmation to AMFI,” it added.

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What experts are saying?

One of the executives at a fund house requesting anonymity, said, “It (contest-based training sessions) reflects very poorly on the sales ability of the mutual fund industry that they have to take this route to sell such a wonderful product. The SEBI guidelines are clear that there should be no contests, then why are we looking for loopholes? This does not take the industry forward.”

Meanwhile, experts are of the opinion that training or educational sessions for distributors are important for the overall growth of the mutual fund industry.

“In many cases, training programmes are independent of the contests that are conducted at IIMs, XLRI or ISB, which are genuine and conducted by professors of the respective institutions. There may be some sessions, which are hosted at exotic-sounding locations such as Singapore or IIM Shillong or IIM Jammu, but they have excellent training programmes. However, some sessions may come under the grey area. We shouldn’t generalize, but treat such sessions individually,” said Amit Trivedi, Author and Founder, Karmayog Knowledge Academy.