The recent steps taken by the Securities and Exchange Board of India (SEBI) to ‘re-energise’ the mutual fund industry have many giveaways for fund houses and their distributors. But, tucked away in the circular, are five changes that should benefit investors as well. Here they are:
No PAN for cash
Are you a small investor who has been shying away from mutual funds because of the PAN card and ever-shifting ‘know your customer’ (KYC) requirements? With effect from October 1, you will be able to invest up to Rs 20,000 a year in cash into mutual funds, without a PAN.
SEBI expects this relaxation to help small traders, farmers, businessmen and others, who don’t have a PAN card, to make a beginning with mutual fund investing. The investments, though, should not violate anti-money laundering rules.
No discrimination please
Confused by the plethora of plans that mutual funds, especially debt schemes, seem to offer? Well, the segmentation of schemes into regular, institutional, super-institutional and other plans was not just there to irritate you. It was also a way by which fund houses managed to charge lower costs to some sets of investors.
The usual argument was that small investors require more ‘servicing’ and paperwork than the guys who can write out six-digit cheques. But SEBI has now cracked down on this practice. With effect from October 1, funds cannot have multiple plans under each scheme. Nor can they charge different expenses.
Fund houses can now offer only one plan for subscription by all kinds of investors. But the existing regular, institutional and super-institutional plans will stay on until all investors in them exit.
Go direct and save
However, one new plan that all mutual fund schemes are required to offer, from January 2013, is a ‘direct’ plan.
From January 1, 2013, investors who walk into a fund’s office or log onto its portal to buy or sell units directly from the firm, will get a low-cost version of the scheme. When investors put in their money directly, fund houses save on the upfront and ongoing commissions they pay to distributors.
This will now have to be passed on to investors in each scheme via the direct plan. If you take advantage of this and go for the direct plan, expect annual savings of 0.5-1 per cent of the net asset value, which is typically what schemes pay as ‘trail’ commission to their agents.
Prompt portfolio disclosures
Are you one of those investors who like to know where your fund is deploying your money? Well, SEBI has now raised the bar on portfolio disclosures by mutual funds. It has made it compulsory for all fund houses to put up their month-end scheme portfolios on their Web site, within 10 days of the close of the month. No dawdling and delaying tactics. It has also said that the portfolios should be in easily downloadable format, preferably a spreadsheet.
That will save all of us the trouble of trying to download bulky PDF versions of an entire fact-sheet in order to get a look at a single fund’s portfolio. We hope this applies to close-end schemes, many of which seem to keep their portfolios a closely guarded secret.
Along with the portfolio, you will also get to know more about the distributors and agents who sell mutual fund schemes. Fund houses are now required to make additional disclosures about their distributors on their Web site.
SEBI has mandated that, once a year, funds must disclose distributor-wise inflows into their schemes, both at the gross and net level. They are also required to come clean with the ratio of their assets under management to the above inflows, for each distributor.
The idea is to pinpoint distributors who churn their clients’ holdings too often in order to line their own purse.
SEBI has put the onus on fund houses to identify such distributors and conduct ‘due diligence’ on them.
SEBI has mandated easier cash transactions, low-cost direct plans and more disclosures to help mutual fund investors.