AMFI acts against misselling of mutual funds; stops junkets, training programme

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The Association of Mutual Funds in India (AMFI), an industry body, has issued an advisory to prevent misselling of mutual funds. The organisation has issued a circular to the companies involved in this business stating that no additional benefits should be given to distributors who have achieved the sales target. AMFI has instructed the companies to stop organising picnics and special training programmes for distributors who achieve the Systematic Investment Plan (SIP) investment target.

Why was this necessary?

There are 44 asset management companies (AMCs), or mutual fund houses, in India that manage assets worth about Rs 40 lakh crore. These companies launch special schemes to increase their business, and they offer financial benefits to distributors who achieve fixed investment targets within a set period. However, the capital market regulator, SEBI, has prohibited the payment of additional commissions to distributors. As a result, mutual fund houses take their distributors on picnics in India and abroad and give expensive gifts to those who meet their targets. To ensure that such cases do not come to the attention of SEBI, companies organize training programs for distributors, which are often just an excuse to provide them with free food. The real purpose of these programs is to reward the distributors.

What is the impact on customers?

Mutual fund companies, under each other’s supervision, conduct training programs every year for the distributors in their network. These programmes are announced several months in advance and distributors are informed that only members who meet their targets will be included. Some companies hold these programs in countries like Thailand, Maldives, and Malaysia, which are expensive. To join these programs, distributors sell products from the company to their customers by exaggerating their benefits. Sometimes these products do not meet the criteria in terms of returns, and in some cases, customers do not need them, yet they are sold. Overall, customers suffer from such misselling, while the company spends the money allocated for training programs from its profits. As a result, the interests of customers are negatively impacted by such training programmes.