A few weeks ago, Moneycontrol had reported exclusively on how SEBI is planning to look at mutual fund costs and expenses once again. While mutual fund costs are already quite low – especially after market regulator SEBI’s massive cost-cutting exercise in 2018, it feels there is still room for costs to go down further. While wider mutual fund industry might not agree, many fund houses appear to be unanimous on one of the proposals under review – the commission incentive paid to distributors for getting inflows from smaller towns. These peripheral cities are popularly referred to as Beyond Top 30, or B30 towns. We hear that SEBI’s data mining team – said to now have been ramped up and quite renowned in the MF circles – has gathered intelligence that distributors in small towns churn their clients’ portfolios a lot. It is noteworthy that extra commission for B30 is handed out only for the first year. Hence, distributors see an incentive to churn portfolios after the year is completed. On another note, SEBI is reported to be asking new fund offer (NFO) data from fund houses to find out how much these offers collect, and how much money comes from its existing schemes. Once again, this enquiry is aimed at checking churning in funds as some smart distributors appear to have a found a way out of this. They shift the clients’ money to liquid funds, let it remain there, and then shift them to the NFO. But then they forgot that SEBI is watching.
