this story originally appeared in on feb 17 2015 mumbai mutual funds may soon be unable to dole out steep commissions to distributors and find it tough to send them to exotic locales as junkets for selling their products securities and exchange board of india is planning to cap the upfront commission that mutual funds pay distributors and get the industry to move to a predominantly trailfee model in which fees are paid in a staggered manner till the time their clients remain invested in a scheme the capital market regulator is considering limiting the total value of upfront fees jaunts and various sales contests at 50 basis points in addition to the trail fee this means the money that fund houses pay distributors or spend on them at the time of selling the scheme should not exceed this amount currently there are no restrictions on how much a mutual fund can spend on distributors as long as it is financed from its pocket sebis decision to impose such restrictions on selling of mutual funds comes in the wake of the high commissions the industry paid distributors last year to sell new fund offers nfos the regulator believes high incentives resulted in misselling in several instances sebi wants to create a balance where the interests of the mutual fund industry are not impacted and at the same time ensure misselling does not happen said a person familiar with the sebi proposal several mutual funds that launched closeended equity schemes in 2014 paid distributors as much as 68 upfront fee in addition to foreign trips in some cases to push their new fund offers nfos sebi came into the picture after it received complaints that higher upfront fees encouraged distributors to sell new funds to firsttime investors in equity products usually new investors in stocks are advised to invest in schemes with a track record in october association of mutual funds of india amfi the industry trade body voluntarily agreed that mutual funds would move to a trail commission structure after sebi expressed unease over the rise in upfront fee paid to distributors but in the absence of a consensus among mutual funds the regulator decided to come up with the new set of rules the dominant players in the industry however are not pleased with the proposal this is because large fund houses would end up paying higher trail commission in a rising market trail fee is calculated on the basis of the net asset value the chief executive of a large mutual fund said restrictions on upfront fee payment would discourage new distributors from entering the business it will not be feasible for a young distributor to rely only on trail commission to survive he will not be encouraged to sell mutual funds said the chief executive