Mutual Funds- Empowering investors through transparency in payment of commission and load structure
Summary
The circular mandates the abolition of entry loads for all mutual fund schemes to enhance investor transparency. It restricts the portion of exit loads or CDSCs that can be retained by AMCs for distributor commissions to a maximum of one percent. The directive requires immediate crediting of any surplus from these charges to the scheme and imposes disclosure obligations on distributors.
Text
There shall be no entry load for all mutual fund schemes.
The scheme application forms shall carry a suitable disclosure to the effect that the upfront commission to distributors will be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor.
Of the exit load or CDSC charged to the investor, a maximum of 1% of the redemption proceeds shall be maintained in a separate account which can be used by the AMC to pay commissions to the distributor and to take care of other marketing and selling expenses. Any balance shall be credited to the scheme immediately.
The distributors should disclose all the commissions (in the form of trail commission or any other mode) payable to them for the different competing schemes of various mutual funds from amongst which the scheme is being recommended to the investor.
This circular shall be applicable for Investments in mutual fund schemes... Redemptions from mutual fund schemes... New mutual fund schemes launched... Systematic Investment Plans (SIP)... with effect from August 1, 2009.
AMCs shall follow the provisions pertaining in clause 5(2)(b) of SEBI Circular SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008 regarding updation of Scheme Information Document (SID) and Key Information Memorandum (KIM) in this respect.
The AMCs shall bring the contents of this circular to the notice of their distributors immediately and monitor compliance.
This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996.
Source: SecMarx — Mutual Funds- Empowering investors through transparency in payment of commission and load structure. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.