Edelweiss Broking is offering gift vouchers to invest in ELSS. This amounts to offering passbacks, a practice barred by SEBI.
Edelweiss Broking Ltd is offering its clients a waiver of transaction charges for investing in equity linked savings schemes (ELSSs) through its online platform and along with this, if the lumpsum order value is above Rs40,000, the clients would receive a Flipkart gift voucher worth Rs500. “This special offer is valid for all ELSS transactions carried out upto the 31st of Dec, 2013,” mentions a promotional mailer sent out to its clients. The mailer goes on to mention the benefits of investing in ELSS offers with its top four ELSS recommendations. The ‘Code of Conduct for Intermediaries of Mutual Funds’ laid down by the Securities and Exchange Board of India (SEBI circulars: MFD/CIR/06/210/2002 dated June 26, 2002 and SEBI / IMD / CIR No. 8 / 174648 / 2009 dated August 27, 2009) clearly states that “Intermediaries will not rebate commission back to investors and avoid attracting clients through temptation of rebate/gifts etc.”
“This is an innovative idea of Edelweiss to offer a “pass back”, according an independent financial advisor Chilukuri KRL Rao. Mr Rao from Hyderabad has drawn our attention to the ground-level practices that hurt investors and smaller distributors. He says, “The lack of transparency in payment of commissions is the root cause of all the ills associated with the industry including upfront commissions.”
We had earlier reported on how fund houses were paying upfront commissions for ELSS (Equity Linked Saving Schemes) and other schemes to garner assets. (Read: Upfront commission being granted for ELSS schemes and MIPs become attractive for distributors due to upfront commissions) Upfront commission as high as 3% were being paid for ELSSs and as much as 1%-1.5% was being paid in the case of MIPs (Monthly Income Plans).
“High upfront commissions lead to the practice of excessive churning by unscrupulous mutual fund distributors in order to earn themselves a higher commission. This practice of fund houses offering a higher upfront commission and lower trail commission is detrimental to many honest distributors who promote investing in mutual funds for the long-term,” says Rao.
The regulator once again fails to take strict action. We have seen this in the case of portfolio management schemes as well, where many PMS companies, including the big ones, are not complying with SEBI’s directives on disclosure of performance data. Portfolio management services (PMS) companies are to “ensure that the clients have access to updated information about the portfolio manager, portfolio managers shall place the latest disclosure document on their website, wherever possible.” But still a large number of asset managers are not following these instructions. (Read: PMS firms misinterpret SEBI rule and avoid disclosure and Investors kept in the dark and hard-sold poor PMS schemes, due to bad disclosure practices)
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam