The guidelines issued last week by the Association of Mutual Funds of India with respect to brokerage to be charged on associate entities of investors clears the confusion that mutual funds were labouring under.
On November 28, 2002, the Securities and Exchange Board of India had issued a circular stating that all mutual funds should not pay commissions in any form or by allotting intermediary codes to investors or their associates for paying them commission on their own investments.
It directed Amfi to formulate specific guidelines and modalities within these parameters, in consultation with itself to assist AMCs in following the code.
It has been clarified that no person or organisation, including a registered intermediary, shall be able to obtain any brokerage on their own investments or that of their associates which are in the nature of subsidiaries or holding companies of the investor.
The Sebi circular has made registration of Intermediaries compulsory.
This would mean that no person or any other entity would be entitled to sell units of mutual funds unless the intermediary is registered with Amfi.
Amfi has made a provision for issuing an Amfi registration number or ARN and photo-identity card for intermediaries.
All mutual funds shall stop empanelling intermediaries who are not registered with Amfi with effect from the date of these guidelines.
For intermediaries already empanelled with mutual funds, being registered with Amfi shall become compulsory by March 31, 2003.
Thereafter, no brokerage can be paid out to intermediaries who are not registered with Amfi on fresh business canvassed by them until such time as they are registered.
Individuals acting as intermediaries also have to pass the certification test and provide proof of it.
Exemption has, however, been granted to senior citizens who have completed 60 years as on December 31, 2002.
Such applicants shall enclose proof of age and a recommendation from a member mutual fund or AMC, certifying that they have been working for 2 years as an intermediary and has canvassed a minimum business of Rs 200,000 over a period of the last 2 years and have met the norms prescribed by Amfi.
To ensure that only genuine distributors are given eligible for brokerage, a set of common minimum criteria has been evolved for the purpose of due diligence before empanelling and thereafter for the payment of brokerage.
All intermediaries fulfilling the empanelment criteria shall be entitled to receive brokerage for all business canvassed by them, except on their own investments.
All individual agents obtaining empanelment with an AMC would be required to have at least 12 investors with the empanelling AMC, within one year of empanelment or, in the case of agents already empanelled, within one year from the date of this circular.
Failing this, the agent would have to provide an undertaking to the AMC that it services at least 25 investors across all mutual funds.
Failing both the above, the agent would not be entitled to receive brokerage from the AMC on the mobilisation done by it during the subsequent year, until it complies with the above.
Corporate agents obtaining empanelment with an AMC would be required to have at least 100 investors from non-associates as defined herein, within one year of empanelment or, in the case of agents already empanelled, within one year from the date of this circular or would have average assets under management of at least Rs 1 crore (Rs 10 million) with the empanelling AMC, which are not from associates (being subsidiary and holding companies) within the period stipulated.
During a twelve-month period after empanelment, if 75 per cent or more of the gross funds mobilised for the empanelling AMC by a corporate agent, is from associates, the agent would be required to provide a certificate signed by the authorised person, that it services at least 200 investors, other than associates or employees of associates, during the said period.
Non-individual agents would also be required to provide to the AMC a complete list of associate companies which are either subsidiary companies or holding companies of the intermediary.
