Review of Commission, Expenses, Disclosure norms etc. – Mutual Fund.
Summary
This SEBI circular modifies regulations regarding mutual fund fees, expenses, and disclosure norms effective April 15, 2019. It introduces specific rules for upfronting trail commissions on SIPs from new investors and defines retail investor inflows for additional TER charges. The document also mandates daily TER disclosures, prohibits entry loads on all SIPs, and clarifies handling of borrowing costs and miscellaneous expenses.
Text
A carve out for upfronting of trail commission has been made for inflows through SIPs from new investors to the Mutual Fund Industry (to be identified based on PAN). The upfronting of trail commission shall be up to 1% payable yearly in advance, for a maximum period of three years.
The upfronting of trail commission may be for SIP of upto Rs. 3000 per month, per scheme, for an investor who is investing for the first time in Mutual Fund schemes.
For a new investor, as identified above, only the first SIP(s) purchased by the investor shall be eligible for up-fronting. In this regard, if multiple SIP(s) are purchased on different dates, the SIP(s) in respect of which the installment starts on the earliest date shall be considered for upfronting.
The upfront trail commission shall be paid from AMC’s books.
The said commission shall be amortized on daily basis to the scheme over the period for which the payment has been made. A complete audit trail of upfronting of trail commissions from the AMC’s books and amortization of the same to scheme(s) thereafter shall be made available for inspection.
The said commission should be charged to the scheme as ‘commissions’ and should also account for computing the TER differential between regular and direct plans in each scheme.
The commission paid shall be recovered on pro-rata basis from the distributors, if the SIP is not continued for the period for which the commission is paid.
It has been decided that inflows of amount upto Rs 2,00,000/- per transaction, by individual investors shall be considered as inflows from “retail investor”.
AMCs shall prominently disclose on a daily basis, the TER (scheme-wise, date-wise) of all schemes except infrastructure debt fund (IDF) schemes under a separate head –“Total Expense Ratio of Mutual Fund Schemes” on their website and on the website of AMFI in a downloadable spreadsheet format as per Annexure A.
Provided that any increase or decrease in TER in a mutual fund scheme due to change in AUM and any decrease in TER in a mutual fund scheme due to various other regulatory requirements would not require issuance of any prior notice to the investors.
It has now been decided to make the provisions of the abovementioned circular applicable to all SIPs including SIPs registered prior to August 1, 2009.
With regard to the cost of borrowings in terms of Regulation 44(2) of SEBI (Mutual Funds) Regulations, 1996, it has been decided that for a given scheme, the same shall be adjusted against the portfolio yield of the scheme and borrowing costs in excess of portfolio yield, if any, shall be borne by the AMC.
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Source: SecMarx — Review of Commission, Expenses, Disclosure norms etc. – Mutual Fund.. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.