Distributors of Mutual Funds Will Receive Trail Commissions When Transferring Investor Assets

Distributors of mutual funds will now have the chance to get trail commissions from asset management companies (AMCs) for assets that investors move between distributors.

This modification is the result of repeated requests from Mutual Fund Distributors (MFDs) to examine the existing transfer guidelines for AMFI Registration Numbers (ARNs).

The existing standards prohibit AMCs from disbursing trail commissions to the new distributor in the event that an investor moves their assets to a different MFD.

In a message sent to its members on Tuesday, the Association of Mutual Funds in India (Amfi) allowed AMCs to pay trail commissions to distributors in the event that a customer moves his assets from one distributor to another.

Nevertheless, AMCs are only able to pay trial commissions during a six-month cooling-off period following the date on which investors transferred their assets.

The trade association said, “After a cooling-off period of six months from the change of distributor code in the unitholder database, the AMCs may consider making payment of trail commission to the transferee distributor in respect of change in distributor/ARN code initiated by the investor.”

Furthermore, it said that the commission rate of the transferor and the transferee distributor would be subtracted to determine how much commission would be paid to the new (transferee) distributor.

The mutual fund industry association went on to say that other than trail commission, no further payments—including incentives—will be given in relation to distributor changes.

The industry association Amfi pointed out that the current ARN rule was put in place more than ten years ago to stop some then-current market practices that might no longer be in place. It also noted that the transferee mutual fund distributor offers the same degree of assistance and service to investors who are concerned about the transferred assets.

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