Total Expense Ratio (TER) and Performance Disclosure for Mutual Funds
Summary
This SEBI circular mandates transparency in Total Expense Ratio (TER) by prohibiting upfront commissions and requiring a full trail model for mutual fund distributors. It introduces an interim carve-out allowing upfronting of trail commissions for new SIP investors, subject to specific caps and amortization rules. Additionally, the document outlines disclosure requirements for scheme performance on AMFI's website and permits an additional TER charge for inflows from B-30 cities.
Text
All scheme related expenses including commission paid to distributors... shall necessarily be paid from the scheme only within the regulatory limits and not from the books of the Asset Management Companies (AMC)... or any other entity through any route.
MFs/ AMCs shall adopt full trail model of commission in all schemes, without payment of any upfront commission or upfronting of any trail commission, directly or indirectly, in cash or kind...
The upfronting of trail commissions, based on SIP inflows, shall be up to 1% payable yearly in advance, for a maximum period of three years.
The upfronting of trail commission may be for total SIP inflows of upto Rs. 5,000 per month, per investor, across all schemes of a mutual fund.
Such upfronting of trail commission shall be up to 1% of the total SIP inflows for a maximum period of 3 years and shall be paid from AMC 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... 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.
In case of misuse of the carve out for SIPs, the same would be discontinued and appropriate action would be taken against the errant participants.
All fees and expenses charged in a direct plan (in percentage terms) under various heads including the investment and advisory fee shall not exceed the fees and expenses charged under such heads in a regular plan.
No pass back, either directly or indirectly, shall be given by MFs/ AMCs/ Distributors to the investors.
Training sessions and programmes conducted for distributors should continue and should not be misused for providing any reward or non-cash incentive to the distributors.
You have read the preview. Create a free account to read the full document and see every order that applied it.
Free accounts include 10 searches/day with full text access.
Source: SecMarx — Total Expense Ratio (TER) and Performance Disclosure for Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.