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SEBI introduced concept of "Opting In" or "Opting Out" for the purpose of transaction charges for Mutual Fund Distributors

SEBI has vide its circular no. Cir/ IMD/ DF/13/ 2011 dated August 22, 2011 introduced a new regulation regarding Mutual Funds. Some of them, relating to Mutual Fund distributors, are reproduced here for ease of reference.
  1. Transaction Charges (TC) in respect of investments sourced by Distributors:

    In respect of new investors i.e. first time ever investor in any Mutual Fund (for subscription / SIP only), a Fund House is allowed to pay Rs. 150/- as TC only where the transaction / SIP commitment value is Rs. 10000/- and above.

    Where such a transaction is from an existing investor, the corresponding TC will be Rs. 100/-.

    In respect of systematic investments (SIP only), a TC of Rs. 100/- is payable in 4 equal installments, starting from the 2nd to the 5th installment, provided the total commitment towards SIP is for Rs.10000/- or above.

    Unit holder's statement of account will reflect subscription amount, transaction charges and net investment.
    Asset Management Companies (AMCs) will deduct the TC from the subscription amount and pay to the concerned ARN holder, subject to deduction of service tax. This could be in addition to existing upfront / trailer fees paid by the AMCs, if any.

  2. Categorization of Distributors as "Opt In" and "Opt Out"

    SEBI has also introduced a concept of a distributor "Opting In" or "Opting Out" for the purpose of transaction charges.

    1. Opt in - An Opt In distributor is someone whose clients will be levied with transaction charges as described above, irrespective of the Fund where an application is submitted.
    2. Opt Out - An Opt Out distributor is someone whose clients will not be levied any transaction charge by any Fund.
    3. Please note that "Opt out" will be the DEFAULT OPTION for all distributors, unless opted otherwise.
    4. A distributor should adopt a uniform practice i.e. he cannot be an Opt In distributor for one investor and an Opt Out distributor for another investor, at any point in time.
    5. Transactions routed through the stock exchange route will not be covered for transaction charges.
    Data relating to the preferred status (i.e. opt in or opt out) chosen by distributors will be stored centrally and shared with all Fund Houses. Distributors to ensure submission of an Option Letter for being an "Opt In" distributor (Opt Out being default) in the specified format latest by October 21, 2011, to the CAMS - Point of Service (POS).

    The options exercised by ARN holders would be registered with AMFI. This will be at an ARN holder level and valid across all Mutual Funds. ARN holders can change their status (Opt in/ Opt out) twice in a year i.e. between March 1st to March 25th or September 1st to September 25th. The new status change will be applicable from the immediately succeeding month.

    All distributors are advised not to resort to any kind of malpractice / mis-selling, including unwarranted splitting of investments and wrong declarations of a "new investor" for receiving transaction charges, as mentioned in the said SEBI circular. Distributors may also go through the SEBI circular dated August 22, 2011, available on SEBI Website , for more details.

    AMFI has already sent letter along with Option Letter to all KYD compliant ARN holders on the address provided by them to AMFI.
  Source: Amfi India

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