Sebi board decides to overhaul of mutual fund rules to curb costs, boost transparency

Mumbai, Dec 17 (PTI) Markets regulator Sebi on Wednesday approved a comprehensive overhaul of mutual fund regulations, including changes to the expense ratio framework and limits on brokerage charges, to boost transparency.

The proposals are aimed at bringing regulatory clarity, reducing redundancies, and promoting ease of compliance.

In its board meeting, Sebi has cleared a proposal to exclude all statutory levy -- STT (Securities Transaction Tax), GST (Goods and Services Tax), CTT (Commodity Transaction Tax) and Stamp duty-- from the expense ratio limits along with the present permissible expenses for brokerage, exchange and regulatory fee, its chief Tuhin Kanta Pandey told reporters here.

Moreover, this expense ratio limits would be called base expense ratio. Presently, GST on management fees is permitted over and above the TER limit. However, all other statutory charges are part of the overall TER limit specified for mutual fund schemes.

The expense ratio limits are proposed to be exclusive of statutory levy, so that any change in statutory levy in future is passed on to the investors. Also, the board decided to eliminate the additional 5 basis points (bps) that asset management companies (AMCs) were previously allowed to charge across mutual fund schemes.

This additional expense, introduced to offset the impact of crediting exit loads back to schemes, was first set at 20 bps in 2012 and later reduced to 5 bps in 2018. The additional expense of 5 basis points (bps) that mutual fund schemes were allowed to charge was transitory in nature, Sebi noted.

Accordingly, with the objective of rationalizing costs for unitholders, this expense has been decided to be removed. To protect the interest of investors and to ensure that expenses are charged fairly only once to the investors, the brokerage charge has been revised from 12 bps to 6 bps for cash market transactions and 5 bps to 2 bps for derivative transactions to bring clarity and transparency.

Also, the regulator said that a provision enabling expense ratio to be charged based on performance of a scheme has been introduced and the same would be voluntary for AMCs.

Also, Sebi has decided to simplify eligibility norms for fund sponsors, digitising investor communications such as annual reports, and removing outdated provisions like those on capital protection and real estate mutual funds.

Additionally, the regulator has decided to ease compliance by reducing the frequency of mandatory trustee meetings, eliminating newspaper advertisements for scheme changes, replacing them with online disclosures and removing duplicative reporting.

Also, Sebi has decided to delete redundant chapters on the real estate mutual funds and infrastructure debt fund scheme, saying separate frameworks for such products already exist.

"This exercise has resulted in a 44 per cent reduction in the size of the regulation from 162 pages to 88 pages. The word count has been reduced by approximately 54 per cent from 67,000 words in the current regulation to 31,000 words in the new draft. Further, a number of new provisions have been reduced from 59 to fewer than 15 and all withstanding clauses have been eliminated except for this its limited use under the 'Repeal and Savings' provision," Sebi said.

The mutual fund industry, which began in 1963, now manages over Rs 80 lakh crore in assets. PTI AA SP SP MR