SEBI directs fund houses not to ask for NOCs from investors
Mumbai: Making it easier for mutual fund
investors to switch their distributors, market regulator SEBI
today said it is doing away with the practice of obtaining a
no objection certificate (NOC) from existing distributors.
In a circular to all mutual funds and asset management
companies (AMCs) the market regulator said, "You are advised
to ensure compliance with the instruction of the investor
informing his desire to change his distributor and or go
direct, without compelling that investor to obtain an NOC
from the existing distributor."
Securities and Exchange Board of India (SEBI) said that
MF industry body Association of Mutual Funds of India (AMFI)
in September mandated 2007 that AMCs will act on instruction
of the investors if they desire to change their distributor.
"It appears that this mandate is not being followed by
the mutual fund industry...Some AMCs are insisting on the
investor procuring a No Objection Certificate from the
existing distribtuor for this switch over," SEBI said.
The market regulator said it has come to notice that
unwarranted hardship was being caused to investors in mutual
Mutual fund tracking firm ValueResearch Online CEO
Dhirendra Kumar said, "The decision is pro-consumer in spirit
and will drive distributors to provide satisfactory
after-sales services to investors. As investors would have the
choice to switch their existing distributor if they are
unsatisfied with its performance."
The NOC clause had been introduced in the first place to
curb practice of mostly high net worth investors constantly
changing distributors based on pass-backs received or
promised. However in 2003, SEBI prescribed a code for
distributors whereby pass-backs to investors were prohibited.
In 2007, AMFI withdrew the NOC clause and a working group
recommended that when an investor indicated his desire to
change distributor, the AMC should act on the instruction. It
also deemed that once the distributor was changed, the trail
commission thereafter for all business done by old
distributor maybe payable to new distributor on a prospective
An industry official said that though the Sebi move was in
favour of investor, it may lead to some aggressive distributor
luring customers with some cash incentives among other things.
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