SEBI moots network expansion to bring in new investors

Mutual fund houses will now be able to charge a higher expense ratio for going beyond top-15 cities, said U.K. Sinha, Chairman, SEBI.

Addressing media persons after a board meeting, he said they can charge 0.30 per cent higher expense ratio provided they bring in at least 30 per cent of the new inflows from beyond the top 15 cities.

Expense ratio is the fee charged for managing funds.

Mr Sinha said SEBI has mandated that the exit load can now be charged directly to the scheme, instead of the fund house. This would be beneficial to investors who stay with the scheme, and therefore, help the industry reduce redemptions, said analysts.

To increase the MF industry’s investor base, SEBI said the distributor base can be expanded by including postal agents, retired Government officials and teachers, among others for ‘distribution of simple products’.

Fund houses will have to make disclosures regarding the efforts taken for increasing penetration and details of new branches opened beyond the top 15 cities.

New investors will be subjected to a single expense structure, he said.

But, direct investors will fall under a different plan, one with a lower expense ratio. For investors who are not tax-payers or do not have a bank account or PAN, investments up to Rs 20,000 will be allowed, provided they comply with the Prevention of Money Laundering Act.

Investor Education

SEBI has mandated fund houses to set aside a portion of the asset management fees for the investor education campaign.

Service tax will be chargeable to the end user, in this case, the mutual fund scheme and not the fund house.

Transaction costs (Rs 150 for new investors and Rs 100 for existing) that a distributor could choose to charge from an investor can now charge at the product-level. This means that the distributor can choose to levy these charges on the products rather than on the investors.

SEBI has also agreed for a self-regulatory organisation for distributors. Fund houses will now be required to give additional disclosures regarding business generated from different geographies.

SEBI has also submitted its recommendations to the Government to include equity schemes of mutual funds for investments in the Rajiv Gandhi Equity Savings Schemes.

The regulator is setting up a committee to frame a national mutual fund policy.

(This article was published on August 16, 2012)
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