Sebi has proposed a significant overhaul of the fee structure of the mutual fund industry as it seeks a transparent break-up of costs that fund houses charge investors. The move is part of the regulator’s effort to ease rules, improve transparency, and reduce costs for unit holders.
In a consultation paper released on Tuesday, Sebi said the mutual fund industry has witnessed significant growth and transformation in terms of practices and technology adoption in investment management.
“Numerous amendments over last 29 years have contributed to MF regulations becoming considerably voluminous and complex. Hence, Sebi has undertaken an exercise to comprehensively review MF regulations,” the paper said.
Sebi has sought public comments on the proposals latest by November 17.
After feedback from the industry and internal deliberations, MF regulations have been redrafted “to ensure simplification of regulatory language; removal of redundant provisions; enhancement of ease of understanding and removal of ambiguities,” Sebi said.
The eligibility criteria for sponsors, for registration of MF as well as MF Lite, have been tabulated for easy reference. Rights and obligations of the trustees and asset management companies was standardised, while valuation guidelines have been specified.
Prior to 2012, exit load charged to the scheme was used by AMCs for payment of distribution commission to distributors. Sebi mandated to credit the exit load to the scheme. “AMCs were allowed to charge an additional 20 bps as additional expense. To facilitate greater clarity and transparency, expense ratio limits are proposed to be exclusive of the statutory levy,” Sebi said.
To protect investors, the brokerage charge has been revised from 12 bps to 2 bps for cash market transactions and 5 bps to 1 bps for derivative transactions to bring clarity and transparency. Trustees of MFs shall ensure the conflict of interests specified in the consultation paper are addressed adequately through suitable oversight mechanism, Sebi said.