HomeMoneySebi directs Amfi to check splitting of transactions by MF distributors

Sebi directs Amfi to check splitting of transactions by MF distributors

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MUMBAI: Markets regulator Securities and Exchange Board of India (Sebi) has asked the Association of Mutual Funds in India (Amfi) to put in place stronger processes to check the practice of splitting of SIP (systemic investment plan) applications.

The regulator has found instances of SIP applications being split by mutual fund distributors in multiple smaller applications to earn higher transaction charges.

A mutual fund distributor can earn a transaction charge of 100 to 150 per SIP transaction, if the transaction value is 10,000 and above.

The fund house deducts a small share from the SIP investment made by the investor, impacting the number of units allotted to the investor.

However, mutual fund distributors have the option, they can choose to receive transaction charges or not.

Action to be taken

Sebi reviewed such instances for the period between April 2019 and September 2022 and recommended that actions be taken against these violations. Amfi has shared the details with RTAs as well, to help implement these measures.

The regulator has asked Amfi to recover charges from distributors, who were found to be indulging in splitting mutual fund transactions for earning extra transaction fees and to credit the amount to Investor Awareness Fund maintained by the industry body.

From 1 October 2022, Sebi has said to “block”distributors who are found indulging in splitting applications for earning separate transaction charges, for a period of six months, without affecting the existing ongoing systematic transactions.

RTAs have been asked to share details of distributors who are found to indulge in such practices, effective 1 October.

Amfi will circulate the list of erring distributors with mutual funds and RTAs so that they can be “blocked” for a period of six months from undertaking any fresh transactions.

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