Source: ET
Context:
The Securities and Exchange Board of India (SEBI) has proposed a comprehensive overhaul of Mutual Fund (MF) regulations, aiming to make them simpler, more transparent, and investor-friendly. The proposals seek to remove outdated provisions, streamline fee structures, and reduce investor costs, reflecting SEBI’s push for regulatory modernisation in India’s fast-growing mutual fund industry.
Key Objectives
- Reduce Costs: Lower total charges for investors.
- Enhance Transparency: Clearer disclosure of fees and statutory charges.
- Simplify Compliance: Ease operational and regulatory burdens for AMCs.
- Improve Governance: Standardise roles of trustees and AMCs.
- Promote Investor Protection: Ensure investors bear only justified costs.
Major Proposals
1. Cost Rationalisation
- Brokerage cuts: Cash market 0.12% → 0.02%; Derivatives 0.05% → 0.01%.
- Exit-load expenses: Additional 0.05% charge removed; exit load continues to credit schemes directly.
- Revised Expense Ratio (TER): First two slabs for open-ended active schemes raised by 5 bps.
- Exclusion of statutory levies: GST, STT, CTT, Stamp Duty removed from TER computation.
2. Transparency in Fee Disclosure
- Statutory charges, brokerage, exchange, and regulatory fees to be disclosed separately.
- Optional performance-linked TER framework proposed for fees based on scheme performance.
3. Governance & Oversight
- Standardised roles for AMCs and trustees.
- Launch expenses borne by AMCs/trustees, not investors.
- Regulation 24(b) updated to allow AMCs/subsidiaries to provide advisory services to non-pooled funds with Chinese walls and trustee oversight.
4. Compliance & Operational Simplification
- Timelines clarified as calendar or business days.
- Digital communication (emails, SMS, websites) replaces newspaper ads for scheme changes.
- Submission of ad copies to SEBI no longer required.
5. Updating Definitions & Removing Redundancies
- New terms: Total Expense Ratio (TER), Exit Load.
- Updated definitions: Mutual Fund, Liquid Net Worth.
- Deleted outdated provisions: Capital Protection Oriented Schemes, Real Estate Mutual Funds, Infrastructure Debt Funds.
Key Terms – SEBI Mutual Fund Overhaul
- Total Expense Ratio (TER): Total costs (management fees, statutory charges, and operational expenses) charged to a mutual fund scheme annually, expressed as a percentage of assets.
- Exit Load: Fee charged to investors when they redeem units from a mutual fund before a specified period.
- Basis Point (bps): One-hundredth of a percentage point (0.01%). Used to measure changes in fees, interest rates, or costs.
- Statutory Levies: Mandatory government charges like GST, STT, CTT, and Stamp Duty applicable to mutual fund transactions.
- AMC (Asset Management Company): Firm responsible for managing a mutual fund’s investment portfolio.
- Trustee: Independent body overseeing that AMCs operate in the investors’ interest.
- Chinese Wall: Internal barrier to prevent conflict of interest between business units of the same company.
- Open-Ended Scheme: Mutual fund that allows investors to buy or redeem units at any time.
- Performance-Linked TER: Optional fee structure where AMC charges depend on scheme’s performance.
- Transitory Expense (0.05%): Previous additional charge allowed over exit load, now removed.
