The Securities Exchange Board of India (SEBI) has issued new regulations for the mutual fund industry in its circular dated 22nd October 2018. The following are some of the key takeaways from the new circular.
Commission Payment Related Changes
- All commissions payable to distributors or related entities will be paid out from the scheme according to applicable regulatory limits. Such payments cannot be made through other routes such as books of trustee, AMC, sponsor, associate, etc.
- AMCs and mutual funds are required to mandatorily adopt a trail mode of commission payouts for all schemes and up-front payment of commissions stand abolished. The only exception is in case of SIP wherein up-fronting of trail commissions is allowed.
- The maximum up front commission payable in case of SIP is capped at 1% of SIP amount. The commission is payable annually for a maximum tenure of up to 3 years. Additionally, this entire payout will be made only from the books of the AMC.
- The upfront trail commission payout may be made for SIP inflows of up to Rs. 5000 per month per investor across all mutual fund schemes. PAN will be used as unique identifier for each investor by the AMC.
Total Expense Ratio Related Changes
- The commissions paid out to distributors, etc. will be used for computing the TER difference between regular and direct plans of the scheme.
- In case a SIP is not continued for the period according to which the upfront commission was calculated, the difference will be recovered from the distributors by the fund on pro-rata basis.
- The fees/expenses of direct plans cannot exceed the fees/expenses charged by a regular plan (in percentage terms).
- Investors will not be provided any pass backs (direct or indirect) by the distributor/AMC or mutual fund.
- AMCs can charge an additional TER of 30 basis points on daily net assets of the scheme on the basis of inflows obtained from cities beyond India’s top 30 cities (termed as B 30 cities). The additional commission for B 30 cities will be payable as trail commission only.
Disclosure Related Changes
- AMCs are required to disclose returns across periods such as 1 year, 3 year, 5 year, 10 year and since inception. Comparison of returns to benchmark (total return index) also needs to be provided.
- AMC disclosure requirements for overnight, money market, ultra short duration fund, liquid fund and low duration fund will require publication of returns data for 7 day, 15 day, 1 month, 3 month and 6 month periods.
- Apart from returns data, AMC are also required to provide other scheme details such as previous day NAV, scheme type, plan type, etc.
Date: 23 OCT 2018