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The Securities and Exchange Board of India, on Thursday, issued a circular to provide clarity on issues such as total expense ratio (TER), service tax, single plan for mutual fund schemes and direct investment, among others. The clarification was necessitated following confusion over the regulations announced by SEBI in the last board meet.
According to it, the 30 basis points increase in the TER can only be charged by the fund house if either 30 per cent of the gross new inflows or 15 per cent of the average assets under management (year-to-date) of the scheme is from beyond the top 15 cities. In case fund houses are unable to meet either of the criterion, expense ratio will be calculated based on daily new inflows.
For new inflows that are redeemed within one year, the additional expense ratio charged will have to be reversed into the scheme.
Service Tax
In addition to the increased expense ratio, invetsors will also have to pay service tax on the investment and advisory fees. Any other service tax to be charged will be borne by the scheme within the maximum limit of the TER.
SEBI has also mandated that fund houses launch schemes under a single plan. Fresh subscriptions under multi-plan schemes such as retail plan, institutional plan and so on, will be accepted under one plan. The existing plans will continue till investors remain invested.
Direct investors will have a separate plan of their own with a lower expense ratio excluding distribution expenses. No commission will be paid from such plans. This plan will have a separate NAV as well. Industry experts say that such a plan would encourage direct investment opportunities in metros, while fund houses increase their distribution network in the tier-II, tier-III cities.
According to the CEO of a mid-sized fund house, for a distributor servicing, a customer in the metros is more expensive than servicing customers in semi-urban or rural areas.
Increasing reach
A new set of distributors will now be aiding the industry in increasing reach. Retired Government and semi-Government officials, postal agents, retired teachers among others, with a service of at least 10 years would be entrusted with selling simple and performing mutual fund schemes.
Simple and performing mutual fund schemes will comprise of diversified equity schemes, fixed maturity plans and index schemes. These schemes are required to give returns equal to or better than their scheme benchmark during each of the last three years. These distributors would be given a unique identity number by AMFI along with the AMFI Registration Number.
Fund houses are required to set apart at least two basis points within the limit of TER for investor education awareness programmes.
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