Yesterday Sebi released several discussion papers to tame the last wild west frontier in wealth management - Alternative Investment Funds (#AIFs). Why? What has Sebi proposed?
The lack of regulation was pushing the industry to sell AIFs and collect high commissions rather than highly regulated mutual funds. 4-5% upfront commissions in some cases
What has Sebi proposed? 3 things: 1) Make it compulsory for AIFs to have a commission-free direct option. Post this, it will be easier for direct investors to buy and Registered Investment Advisors (RIAs) to offer them to their clients. RIAs are not allowed to collect commissions
2) Ban upfront commissions in Category III AIFs, which is the closest counterpart of mutual funds. However Category I and II AIFs can give upfront commission to distributors up to one third of the total commission to be paid.
Dematerialize AIF units. Of the 1,022 AIFs registered with Sebi only 5 schemes have created demat units. In the first phase, make demat mandatory for AIFs above 500 crore in size. Give 1 year for this process. Allows better record keeping. #personalfinance
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