Acting to make funds' new issue practices more transparent and fair, SEBI has disallowed open-ended schemes from charging initial issue expenses from the scheme's NAV. Taking these expenses from the NAV (which effectively meant getting investors to pay them) was a till now a widespread, though not universal practice. For example, out of major new funds launched in recent months, Magnum MultiCap and Reliance Equity Opportunities charged expenses from investors while Fidelity Equity and Franklin India Flexi Cap did not.
From now on, only close-ended schemes will be allowed to charge initial issue expenses from investors. Even here, when a close-ended scheme which is amortizing such expenses over a period, if an investor somehow exits the scheme before such amortization is complete, the remaining part of the expenses attributable to him must be recovered from him.
This is a positive move and will prevent the likelihood of shifting the burden of expenses from one investor to another. Till now, open-ended schemes were also allowed to amortize the expenses and if a significant part of the investors of an NFO redeemed their units, this had the potential to increase the burden of the initial issue expenses upon the remaining investors tremendously. But with the new regulation, that will no longer be the case and the expenses will be rightfully borne by the person who is supposed to pay them.
In another amendment, SEBI has standardized the process of declaring and distributing dividends. Among other guidelines related to the communication of dividend distribution, SEBI has stated that the notice of dividend should be issued by the AMC within one day of the decision by the trustees to distribute the dividend. Further, the record date for such dividend should be 5 days from the issuance of the notice. Before the issuance of notice, no communication indicating the probable date of the dividend declaration should be made.