The Securities and Investments Board of India, having ordered mutual fund houses to present a stand-alone figure that reveals the amount of commission given to distributors in account statements, is considering a clamp-down on commissions. This seems to be part of a worldwide trend set off by the Retail Distribution Review in the UK.

The figure is to be an amalgam of trail commission and upfront commission. SEBI's 'commission disclosure rule' is to take effect on 1 October. Any investor who invests in mutual funds through a distributor will then, if all goes well, know how much he is making from him by looking at the half-yearly consolidated account statement. 'Commission' is to include remuneration in the form of gifts and sponsored trips. The total expense ratio of the schemes in which the investor has invested is also to be included. Meanwhile, according to one report, the salaries of the chief executive officer, the chief investment officer and chief operations officer must appear on eaach distributor's website, along with the names of employees earning more than 6,000,000 rupees a year or (in the case of seasonal or intermittent employment) 500,000 rupees a month. Commentators are expecting such disclosures to prompt wealthy investors to demand lower commissions.

In the meantime, SEBI is considering capping commissions. At one regulatory meeting, according to the Business Times, "to curb mis-selling and unnecessary churning, it was proposed the difference between upfront commission and trail commission didn't exceed 50 basis points."

A mutual fund, according to SEBI's definition, is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in its offer document. It spreads investments in securities across a wide cross-section of industries and sectors, thereby reducing the element of risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual funds issue units to their investors (i.e. unit-holders) in accordance with the quantum of money they invest.

SEBI's regulations require that at least two-thirds of the directors of a mutual's trustee company or board of trustees must be independent, i.e. they should not be associated with the sponsors. Also, 50% of the directors of the fund's asset management company must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.

If a scheme has to be wound up, the mutual funds pay a sum based on prevailing net asset value (the market price of the assets/securities it holds) after an adjustment of expenses. Unit-holders are entitled to receive a report from the mutual funds which gives all necessary details. They should be able to find the name of a contact person in the offer document of the mutual fund scheme if they have any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset management company and trustees should also appear in the offer documents. Investors should approach the concerned mutual fund's investor service centre with their complaints but, if those complaints remain unresolved, they may approach SEBI.

It was in 1963 that the Indian Government founded the Unit Trust of India, the jurisdiction's first mutual fund. UTI had the mutual fund market to itself until the 1980s. SEBI imposed the Mutual Fund Regulation on such funds in 1996. Fewer than one-tenth of Indian households have invested in mutuals so far, pointing to their underuse. Online platforms for investment in mutual funds appeared in 2009. The market is growing steadily, with mutual fund houses approaching SEBI for permission to found new schemes against a backgroud of increasing demand from retail investors and the popularity of recent fund launches. SEBI's notes from its annual 'brainstorming session' this month include a reference to "revisiting the framework for retail distribution, investment advice and curbing mis-selling.