Market regulator SEBI has levied a penalty of ₹1 lakh each on DSP Investment Managers and DSP Trustee for bearing extra expense ratio of its DSP Nifty 50 ETF on its books.

DSP Mutual Fund in its compliance test report for the March quarter and Half Yearly Trustee Report ended March informed SEBI that the total expense as a percentage to average asset under management (AUM) was higher than the total expense ratio (TER) charged to the scheme (DSP Nifty 50 ETF); the excess expenses were borne by DSP Investment Managers. The reason for the AMC bearing the excess expenses is the competitive market. Increasing of TER would have restricted the ability to increase the scheme’s AUM, it said.

Gravity of violations

Vijayant Kumar Verma, Adjudicating Officer, SEBI, in an order said though the amount of expense of scheme — ₹53,238 — borne by the AMC was miniscule, the gravity of violations involved cannot be ignored.

If a scheme discloses TER lower than in reality, the disclosed TER is misleading. Further, this practice has the potential to create anomalies in the mutual fund industry, as profitable AMCs or AMCs with deep pockets can afford to pay scheme expenses from AMC books, whereas small AMCs will not be able to bear such expenses from their books, said the order.

The AMC has violated SEBI circular which requires all scheme-related expenses to necessarily be paid from the scheme only within the regulatory limits and not from the books of the AMC, its associate, sponsor, trustee or any other entity through any route, it said.

Related Topics
comment COMMENT NOW