Sebi cuts expenses charged by mutual funds to increase penetration

Markets regulator Sebi has drastically slashed the 'additional expense' charged by mutual funds to just 5 basis points to help increase the penetration of such products among investors.

The move will help reduce the cost of investing in MFs and industry players believe that it may result in lower commissions for distributors.

The additional expense of 20 basis points has been reduced to 5 basis points across all MF schemes, the Securities and Exchange Board of India (Sebi) said in a notification dated May 29.

One basis point is one-hundredth of a percentage point.

The regulator in 2012 had permitted MFs to charge 20 basis points of assets under management of the scheme in lieu of exit loads, or the sum mobilised from investors when they offload holdings.

In case of open ended equity and balanced schemes currently, the additional expense charged is significantly higher than the actual credit back of exit load to the scheme. In comparison, the additional charge is lower in the case of open-ended debt schemes.

Across all open ended equity and balanced schemes, an average exit load of around 5 basis points has been credited back whereas an average additional expense of 18-20 bps has been charged to such schemes.

That apart, Sebi has made amendment to the regulatory framework to enable disclosures related to MFs in investor-friendly electronic form.

It has dispensed with the requirement of publication of daily net asset value (NAV), sale or repurchase prices in newspapers and of sending physical copies of scheme annual reports or abridged summary to all the investors whose email addresses are not available and statement of scheme portfolios to unitholders on half-yearly basis.

Instead, these details will be placed on the websites of Amfi (Association of Mutual Funds in Industry) and MF houses.

Currently, there are 42 mutual fund houses managing assets to the tune of over Rs 23 trillion.

Securities and Exchange Board of India ( SEBI )