Sebi sops for MFs, but want more disclosures

Regulator Securities and Exchange Board of India today took decisions aimed at incentivising the mutual fund industry, which has been at the receiving end of the slowdown.

FP Staff August 16, 2012 17:16:03 IST
Sebi sops for MFs, but want more disclosures

Regulator Securities and Exchange Board of India today took decisions aimed at incentivising the mutual fund industry, which has been at the receiving end of the slowdown.

Sebi sops for MFs but want more disclosures

Reuters

As part of MF reforms, the Sebi today gave more flexibility for mutual funds in using the expense ratio by allowing fungibility of the expense ratio. Expense ratio is the fee charged by asset management companies for managing the schemes.

To improve the reach of MFs and improve long-term money for smaller towns, AMCs are allowed to charge additional TER of up to 30 bps depending upon the new inflows from locations beyond top 15 cities, SEBI said. However, AMCs can charge this 30 bps if fresh inflows from these cities are a minimum 30 percent of the total inflows. If the inflows are lesser AMCs can charge additional TER ( total expense ratio) only in proportionate amount.

Investors invested in the same schemes but belonging to a different class of investors will not face differential treatment. Which means, all new investors will have a single expense structure and fall under a single plan. However, those who want to invest directly and direct investments will have a separate plan which will have a lower expense ratio.

However, Sebi did not reintroduce the entry load, as speculated in various media reports.

Another incentive for the industry is the service tax which will now be charged on investors and not fund houses.

It also said exit load charged on investors will be invested back in the scheme, which is a leg-up for the investors.

However, AMC's will need to make more disclosures on fund inflows, both net as well as gross, average assets under management. Sebi has asked MFs to make complete disclosure in the half yearly report of the Trustees, pertaining to their efforts to increase reach in hinterland and details opening of new branches.

In another move to reduce churning and encourage long term holding of investments, Sebi brought about two changes. Henceforth the entire exit load would go back to the scheme, while AMC can charge an additional TER to the extent of 20 bsp, though, this additional 20 bps will not result in any additional cost to investor, says Sebi.

The additional TER can be clawed back provided to the extent the investments are redeemed within a period of 1 year, this is applicable in case of the inflows from cities beyond the top 15 cities.

Sebi has also asked the industry to set apart a portion of the asset management fee for investor education. Sebi will set up a new SRO to look after regulation pertaining to distributors. A new product labeling mechanism will be put in place, which will specify the suitability of the products to certain class of investors.

Sebi will set up a panel to frame national mutual fund policy aimed at long-term growth for the sector. It will seek tax incentives in equity funds under Rajiv Gandhi Equity Savings Scheme.

In order to tackle the issue of mis-selling, the Board decided to create a system of identification of actual sales personnel of distributors, evolve a system of 'product labeling' and inclusion of mis-selling as a 'fraudulent and unfair trade practice' in Sebi Regulations.

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