SEBI plans to introduce transaction fee on MFs to incentivise agents, but will this move help in health anyone

The proposed fee (Rs100-Rs150 on investments above Rs10,000) might be too little to help agents—who find peddling ULIPs more lucrative

The Securities and Exchange Board of India (SEBI) plans to impose a transaction fee of Rs100-Rs150 on investments above Rs10,000 in mutual funds to incentivise brokers to sell schemes to investors. This transaction fee is another form of entry load which was banned by the earlier SEBI chief CB Bhave in August 2009. Since then there has been an exodus of nearly Rs20,000 crore from equity funds and a decline of nearly 22 lakh equity-oriented mutual fund accounts.

But could the ban on entry load be a major cause of such a huge outflow? For sure, there have been other factors which led investors to exit from participating in the market. Among some of the other factors that deter retail investors from putting money in the markets are the unexplained volatility in the market, manipulation of IPOs (initial public offerings), poor performance of 40% of funds, several counts of mis-selling, lethargic complaint redressal and lack of financial awareness.

A majority of the population, therefore, finds it safer to keep cash lying in savings accounts or fixed deposits. In 1990-91, 32% of household savings was invested in bank deposits. Now that figure has climbed to 51%.

The regulator has failed to look into the other factors for poor retail participation. Without adequate research, survey or discussions with investors, is SEBI making the same mistake all over again?

The entry load for mutual funds was banned in order to make it fairer. "The investor is more important to the market than the distributor," said Mr Bhave at the announcement of the ban on entry loads. This decision never went down well with the fund industry. Distributors found fund-selling unviable and have been moving out of the business. The penetration of mutual funds is so poor that brokers had little incentive to sell mutual funds. The zero entry load was not motivating enough either for the investor to go in for mutual funds on their own.

SEBI chairman UK Sinha said that the transaction fee paid to distributors would help mutual funds penetrate the retail segment in smaller towns. But would it benefit agents, who, after the ban on entry load, opted for selling products like ULIPs (unit-linked insurance plans) which earned themselves higher commissions? The commission earned on ULIPs is still much higher than the measly Rs100, so will agents actively push mutual funds to customers? Investment in ULIPs start at around Rs10,000, therefore a customer having the finance would be pushed by the agent to go for a ULIP where "he will get a life insurance benefit as well".

This would earn the agent a higher commission and would defeat the purpose of the transaction fee planned to be introduced by the SEBI chief.

What about agents who don't sell ULIPs? During the time of entry load, there were numerous cases of distributor's hard selling mutual funds to hapless investors. The transaction fee may lead to the same practice distributors were following earlier.

The other changes SEBI has proposed-like simplifying the IPO form and providing a new format for opening a trading account that will require the investor to make only a single signature compared to the 50-odd signatures earlier, will allow investors to participate with ease. However, SEBI has overlooked the main problem of getting investors to participate in the market.



Mukesh Parikh

6 years ago

SEBI introduced transaction fee to incentivize agents but in already down market where investors have disappeared.You will see that 95% of the agents will opt-out i.e. not agree to charge his investor Rs.100/150.
If SEBI wants to implement it, make it compulsory.

pankaj kapadia

6 years ago

Call it entry load or trasaction charge it should be 5% on the investment made. Alongwith this rebating should be made legal. Let investor and distributor decide withing or above limit of 5%. It should be reduced from the investment amount and be stated in the form. It is fair to investor and distributor. There is transaparancy as sebi wants and compensation as distributors want. This will work with investors...


Keshav B Bhat

In Reply to pankaj kapadia 6 years ago

why SEBI should limit anything? as it is said let the investor and the distributor decide and mention the copansation to the distributor and mention in the application form and the amount to be deducted from the investment amount and given to distributor by the AMC. Those who dont want to pay the fee to the distributor can always do their investments directly.

Harish N

6 years ago

This is neither going to help the cause of the distributors nor that of investors. Rs. 100/- now a days is not even peanuts. In any case, one who thinks that anything can be charged to investors certainly lives in fool's paradise.

Yash Verma

6 years ago

Its a welcome move by SEBI. Though Rs 100/- is peanuts these days, but something is better than nothing. Mr Sinha is thinking right, unlike his predecessor. This amount should be gradually increased.

Prashant Bhawar

6 years ago

Sir I think that this is very good design by SEBI for working MF adviser. And no entry load is very profitable in view of customer. In our town we charge fees for investment and customer don't have any obligation for such fees because he know very well that whatever we demand that is right and don't have hidden charges


Keshav B Bhat

In Reply to Prashant Bhawar 6 years ago

Dear Mr Prashantjee,
I do hear in mumbai also a lot of people saying they charge fee to their clients but in reality only a few client pay the fee to the services they received and maximum no of people do not mind if it is included in their investment but to pay separately to the services they think it is expansive and this mind set will not go out so eassyly as we indian want everything cheap or free. Even if they are ready to pay they beleive in bargaining rather than paying the reasonable fee asked by the service provider. ( Further i find some people who used to rebate even the gifts received for the ake of the bussiness are telling they r charging fee to the client, which is not digestible by any one who has seen their way of dealings). any way all the best.

Vikas Gupta

6 years ago

Rs.100-150 Transcation is not going to help IFAs as once again it has to be charged by IFAs only. AMCs don't have any role in this. SEBI has already given liberty to IFAs that they can charge up to 5% from MF Investors according to the services rendered but a very few of us are able to charge our investors. So I doubt how many among us woul have the courage to apply the new Transcation Fees on our investors



In Reply to Vikas Gupta 6 years ago

Dear Sir,
when Mr siha was heading the UTI, he was the main supporter of baning entry load and the UTI relationship managers used to encorage rebating by the IFA's, so what else you can expect by him just because he has become SEBI chairman?


In Reply to KESHAV B BHAT 6 years ago

I agree to u fully and further i will add that Mr Sinha was staunch supporter of promotion of online facility at UTI offices,during his tenure custoemrs were regularly sent letters to register for online transactions via UTI portal and letters were sent for registering email and phone nos(i knew it will happen so i rarely used to submit these deatial in application form),
but when all his efforts failed he realised importance of distributors as important link to bring business,but still he gave only a lollipop of 100 Rs which looks more like a beggers bite rather then a professional fees.
i am sure this is not goping to help much to recover the damaged industry.


6 years ago

Sir, There is an association called AMFI - Association of Mutual Funds of India headed by a Chairman. When there was a ho and cry that so much of vol. of amount had gone out of equity funds, what this is doing. Is it not a primary duty of this asson. to find the cause and rectify after taking up this issue with SEBI. " No entry load" was introduced and then Demat in MF was introduced. All these things are main cause. IF this being the case where is question of penetrating MF in small town. No advisor in MF industry can do free service. A noble laurette said "Nothing is free in the world." There should be appropriate incentive

Sebi asks mutual funds to become more transparent

Market regulator wants funds to give investors reliable and more information about available schemes, performance and investments. Introduces due diligence for distributors, agents

Mumbai: The Securities and Exchange Board of India (SEBI) has asked mutual funds to bring in more transparency in their dealings with investors and agents, while allowing them to charge a fresh transaction fee.

At a board meeting on Thursday, the market regulator heeded the long-pending request of mutual funds to help them contain the losses suffered due to the abolition of entry charge on investors.

SEBI also allowed them to manage and advise pooled assets, such as offshore funds and pension funds, provided there was no conflict of interest due to a differential fee structure.

However, the regulator asked the industry to become more transparent in the information given to investors through advertisements and other channels, PTI reports.

"Guidelines for advertisements will be suitably modified to include point-to-point return on a standard investment of Rs10,000 and other performance-related disclosures."

Besides, mutual funds would be required to give more granular disclosure of their assets under management (AUM) figures, giving the break-up of debt/equity/balanced and also geography-wise disclosures.

"The scheme's performance will have to be disclosed against the Sensex or Nifty, or Government of India debt paper, in addition to benchmark of the scheme. The performance of fund managers across all schemes managed by the same fund manager will have to be disclosed," SEBI said.

SEBI also took the first steps towards regulating mutual fund distributors or agents. "Selected distributors will be regulated through asset management companies (AMCs) by putting in place the due diligence process to be conducted by AMCs," it said.

The due diligence process will be initially applicable for those distributors having multiple-point presence in more than 20 locations, having raised assets of over Rs100 crore across the industry from non-institutional investors and high networth individuals (HNIs).

The distributors, having received the commission of over Rs1 crore per annum across industry, and of over Rs50 lakh from a single mutual fund, would also be covered in the initial phase. "It is estimated that this measure will cover distributors handling about half of the total AUM in the industry," SEBI said.

It also asked mutual funds to disclose the commissions paid to distributors and said that the mutual fund industry body AMFI would disclose the aggregate amount of commissions paid to such distributors by the industry.

SEBI said all operations of a mutual fund would be required to be located in India. "All the operations of a mutual fund, including trading desks, unit holder servicing, and investment operations shall be based in India."

"Mutual funds having any of their operations abroad, will be required to immediately confirm that they shall wind up the same and bring them onshore within a period of one year from the notification of amending the regulations. The period is extendable by another one year on SEBI's discretion," it said.

In another move that should be helpful to investors, SEBI said one common account statement would be dispatched every month for investors who have transacted in any of his/her folios across the mutual funds.

"The statement shall also contain the disclosure related to the transaction charge paid to the distributor. One common account statement will be dispatched to the investor every half-year for all non-transacted folios." And in an initiative to reduce the use of paper, the regulator advised that unit holders, who have registered emails, would be sent the annual reports by email.




6 years ago

The Editor Money Life
(Personal finance magazine)
Respected Sir,
Sir, I am a regular reader of Money life and I like it very much because there are lots of knowledge and information available in moneylife.I also respect this site because I think it is only the site that truly stands for any common people who are interested in Investments and day to day information of all types.
Sir ,my main motive to write this letter to you is that in Assam a corporate house name GTFS (Golden Trust Financial Service) is selling Mutual fund like a grocery shop selling biscuits. Sir, to my knowledge any individual who wants to sell mutual fund must be AMFI certified and nowadays NISM certified.Nodoubt GTFS has got its ARN No but the people that GTFS has engaged in selling mutual fund are not all ARN holder. The people that are selling mutual fund don’t even know what is mutual fund. Even banks today made it compulsory for its employee to obtain ARN No in order to sell mutual fund products in banks but how come these corporate houses engage people to sell mutual fund without any ARN No. SEBI and AMFI has also made it clear that anybody who wants to be a mutual fund advisor must possess ARN No.Sir I would humbly request to take some time out of your busy schedule and please take this matter to some height .
Thanking you
Shankar kumar

Stop UID number scheme immediately, activists urge PM

Activists are urging the PM to immediately stop the UID or Aadhaar number scheme due to invasion and misuse of privacy, saying that it is against the Constitution. They want the funds diverted towards more productive projects

Already under heavy criticism, the UID (Unique Identification Number), or Aadhaar as it is called now, has more flak coming its way. Human rights activists, led by advocate and activist Kamayani Bali Mahabal, have started petitioning Prime Minister Dr Manmohan Singh against Aadhaar, since they believe it is a gross violation of individual privacy. Their petition states that collection of highly sensitive personal data of the population without following Parliamentary procedure is unacceptable and outright violation of Article (21) of the Constitution. (No person shall be deprived of his life or personal liberty except according to procedure established by law).

Ms Mahabal, who is petitioning online and creating awareness about this issue told Moneylife, "Parliament has not yet approved the project. The UIDAI (Unique Identification Authority of India) has no authority to collect sensitive data and what they are doing is actually without the authority of law. There is no protocol for data protection that has been built into the law yet."

Rejecting the Aadhaar scheme completely, activists are appealing to the government to shut it down with immediate effect and divert the allocated humongous funds towards productive and needful projects.

They are arguing that the State cannot pass a law that allows invasion of privacy of its citizens. Article 13(2) supports this, "The State shall not make any law which takes away or abridges the rights conferred by this Part and any law made in contravention of this clause shall, to the extent of the contravention, be void."

The data collected and information stored in the card can lead to misuse at unimaginable levels, serving purposes exceeding its original intent. They believe it can be used to profile citizens in a country and initiate a process of racial/ethnic cleansing, on the lines of the genocide in Rwanda in 1995. Ms Mahabal argues, "Privacy law is still being made, and till it is in place, the UIDAI should not be doing what it is, and it certainly cannot be allowed to share information as it proposes to do under the 'information consent' clause in its form."

Although, the Constitution doesn't explicitly specify privacy rights, the Apex Court of India said in a landmark judgement (Unni Krishnan, J.P & Ors. Etc., versus State of Andhra Pradesh & Ors,) on 4 February 1993, had ruled that "This Court has held that several un-enumerated rights fall within Article (21) since personal liberty is of widest amplitude."

Introduced in the 1930s in the USA, as a way to track individuals for taxation purposes, Social Security numbers were never designed to be used for authentication—moreover, these cards don't carry biometric data. Over time, however, private and public institutions began keeping tabs on consumers using these numbers, requiring people to present them as proof of identity, such as when applying for loans, fresh employment, or health insurance. The Aadhaar whitepaper itself says, "Since it is likely that increasingly the UID will be used by several service providers (government agencies, private institutions and NGOs), it is important for a resident to be able to remember it in the absence of a token such as a card."

Condemning the wasteful expenditure spent on Aadhaar, activists are saying, "We do not want our tax money to be spent on building trade infrastructure for the undue benefit of domestic or foreign corporations taking away the bargaining power of customers." There is no reason to disbelieve that the centralised database of citizens could be misused to profile citizens in undesirable and dangerous ways.

The US, UK and Australia have shelved their proposed public ID cards after public protests. Even China withdrew the clause to have biometric data stored in its cards. A London School of Economics report has noted that "Identity systems may create a range of new and unforeseen problems. These include the failure of systems, unforeseen financial costs, increased security threats and unacceptable imposition on citizens."

Ms Mahabal concludes, "The possession of a UID can at best serve only as proof of a "unique and singular" identity and does not guarantee either citizenship or benefits. This being the case, it is strange that this scheme is touted as a step for good governance."



S H Subrahmanian

6 years ago

Dear Nagesh,
True, funds would reach the 'always affected' people and the money will be directly sent to the persons bank account with the help of UID and not to the corrupt middle men (ministers, corporators, designated govt agencies) who delay or eat away the funds. The point is it will come in handy only for Sonia and Cong, @ Rs 2,500 per person, for his/her vote ..! Out of purview for EC ....!


6 years ago

In addition, it appears as though the UIDAI is not able to conclusively confirm the country of origin of their vendors, as they have told me in their Order on First Appeal to an RTI vide their lettter No. F.12013/13/2011/RTI-UIDAI dtd 21st July 2011 - which response has taken 10 months to arrive, which in itself shows their evasiveness.

The relevant part says:- ""There are no means to verify whether the said companies/organisations are of US origin or not". Leave alone performing a basic KYC on their vendors, they don't even know which country their vendors are from??


6 years ago

Only people with selfish interest feel that this provision of UID is wrong n bad at law.

My feeling is that with UID every individual will be uniquely identified and during crisis if the government needs to disburse the releif funds to the affected people the money will be directly sent to the persons bank account with the help of UID and not to the corrupt middle men (ministers, corporators, designated govt agencies) who delay or eat away the funds. Also with UID in place people cannot do fraud transactions or cheat the financial institution which saves the nations money.

Also it will be easy to disburse the retirement funds by the government to the senior citizens who will be taken care of by the government who have paid their taxes when they were earning.

Many more benefits can be directly sent to the rightful persons with very less or no expenses for such transactions.

Please share and use the knowledge in the right direction we will surely have a very beautiful world to live. Else we are making our own hell.

please think and help ourselves. Corrupt people with bad intentions always come in the way of national development.



In Reply to Nagesh 6 years ago

Dear Nagesh,
You had answered the question "why no UID" in your answers. There never was a problem with identification systems in India. We have so many of them, like PAN card, Voters ID card, Driving Licence etc. The problem as you correctly mentioned is with the distribution system. Even today, there is a provision to get signature or thumb impression of labours who work and get paid on the Employment Guarantee Scheme. But in practice what happens? They sign or put their thumb impressions, but the middleman or muster clerk take out his share and hand over the rest of money. In case of your suggested method of transferring money directly to the beneficiary, what will happen is the same muster clerk will demand money in advance from the labours before passing thier payments to the bank.
Another thing, UID was never meant to be an "ID Card". Thats the misconception. It is just a number and to verify the corresponding number with the person who is carrying it requires additional equipments like finger and iris scanners to be installed at every place. The simple IRIS scanner costs minimum US$3000. Do you think the end merchants, or establishments would spend this much money from their own pockets? If not, then this defeats the whole purpose of having an UID number.
If your or UIDAI's intention is to clean the system, make it corruption free, then first you need to have it endorsed by the Parliament. Without getting the Bill passed, the UIDAI and Govt of India, are spending crores of ruppes from taxpayers pocket on this illegal thing. Hope you understand the difference between legal and illegal schemes.


In Reply to Nandan 6 years ago

Mr Nadan, if current prrofs are adequate then how is that millions of Bagladeshis and Pakistanis continue to live in the country and weaken it from within?


In Reply to Nandan 6 years ago

Appreciate your reply. Also updating me with the information i was not having regards to UID that it is yet to be passed by the parliament.

Honestly speaking these some creatures sitting in the parliament do not deserve to be there but their fate has put them in that place. And we are responsible for sending them there. now that they have the position to decide they will never allow those systems which will be an obstacle for them in minting the money money and not being held responsible by doing so.

Great example is the actual draft of JAN LOKPAL BILL
rest you know what this government is doing.

We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)