The capital markets regulator, Securities and Exchange Board of India (SEBI), late Monday announced a raft of measures designed to improve transparency in investment expenses while reducing portfolio churning and mis-selling in mutual fund schemes.
From now on, all scheme-related expenses, including commissions, shall be paid from the scheme only and not from the books of the asset management company, SEBI said. The regulator has also done away with upfront commission of 1% allowed earlier and fund houses will henceforth have to pay commission via a full trail fee model in all schemes.
Front-loading of commissions will now be allowed only in case of systematic investment plans (SIP). Here, fund houses can pay 1% yearly in advance for a maximum period of three years. Since this process would require integration at the registrar and transfer agent-end (RTA)in the interim, upfronting of trail commission for total SIP inflows of Rs 5,000 per month, per investor, across all schemes of a mutual fund shall be allowed.
In case an investor does not stay the full course of the SIP, the commission will be recovered from distributors on a pro-rata basis.
All fees and expenses charged in a direct plan will not exceed the fees and expenses charged under such head in a regular plan. Training sessions and programs conducted for distributors must continue and should not be misused for providing rewards or non-cash incentives to distributors, the market regulator said.
Additional commission paid to distributors for investors from B30 (beyond top 30) cities shall be payable for investments only from individual investors and this commission shall be payable in a trail mode only.
Asset managers are also required to disclose on their Web sites scheme returns versus benchmark returns in CAGR terms for various periods, namely 1 year, 3 year, 5 year, 10 year and since inception. For certain category of debt funds, performances of 7 days, 15 days, 1 month, 3 months and 6 months need to be displayed.