Securities and Exchange Board of India (SEBI) finally came out with the much-awaited fine print on the recommendations which were announced in the board meet on August 16. The changes, expected to rejuvenate the ailing mutual fund industry, will be applicable from October 1.
Market participants say while most of the recommendations are in line with the expectations, they are amazed at the regulator's silence on important issues such as charging additional total expense ratio (TER) to extent of 20 basis points and fungibility of expenses. "There is no mention of additional charging of 20 basis points in the circular; there should be some clarity on it," says Deepak Kumar Chatterjee, MD and CEO of SBI Mutual Fund.
The Regulator in its circular, released on September 13, said funds can charge an extra TER up to 30 basis points if new inflows beyond top 15 cities are at least 30 per cent of gross new inflows in the scheme or 15 per cent of the average assets under management whichever is higher. Sebi has also directed that the additional TER charged should be clawed back into the scheme if the investments are redeemed within a period of one year.
Sebi has also announced that there will only be a single plan structure for all the mutual fund schemes and asked fund houses to accept fresh subscriptions only under one plan.
The circular further states that from January 1 2013, fund houses should provide a separate plan for direct investments in existing as well as new schemes. Sebi in its circular states: "Such separate plan shall have a lower expense ratio excluding distribution expenses, commission, etc., and no commission shall be paid from such plans. The plan shall also have a separate net asset value (NAV)."
This move has not gone well with many fund houses as direct plans don't provide any incentives.
"We will have to find a cost-efficient way and work on the direct plan model as it will be provided in all the schemes," says Chatterjee.
Also, service tax can be charged from investors on investment and advisory fees, over and above the maximum permitted expenses. Service tax on any other service will have to be borne by the fund house.
Waqar Naqvi, CEO, Taurus Mutual Fund, says: "Though the announcement was as expected, we are still unclear on few issues such as charging the additional TER and fungibility of expenses. I think it will take some more time to get an exact picture and implications of the new regulations."
Apart from that, a new class of distributors will be created which will include postal agents, retired government and semi-government officials with a service record of at least 10 years. It has been stated by the Regulator that they will be permitted to sell simple and performing schemes which will include diversified funds, FMPs and index funds which have a three-year track record of beating their benchmark index.
Cash investments without quoting a PAN number will be permitted up to Rs 20,000 per mutual fund, per investor, per financial year. However redemptions and dividend pay-outs will only be through a bank account.
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