Fintotal News Analysis | Mutual Fund Services to Get Revamped
Mutual Fund Services to Get Revamped
Ruby Jacob, 15 Sep 2012

SEBI has finalized decisions that will re-energize mutual fund industry. It has directed all mutual funds to implement most of the recommendations by 1 Oct 2012.

Important among these is the changes in expense ratio and service tax charged by AMCs. Asset Management Companies have been permitted to charge additional 30 basis points on the expense ratio of funds if they are able to generate at least 30% of new inflows from cities beyond the top 15 ones or if the new inflows from beyond the top 15 cities are at least 15% of the average AUM of the scheme. 

Expense ratio is charged on mutual funds to recover management and operational expenses. It is stated as a percentage of returns. But you don't actually see this happening because it gets deducted on a daily basis. SEBI has directed AMCs to claw back additional expense ratio charged on account of inflows from beyond the top 15 cities in case the investment is redeemed within one year.

Your mutual fund can charge additional service tax on investment and advisory fee beside the total expense ratio. Exit load charged on schemes while they are redeemed will have to be credited to schemes.

The big sop for investors is that all mutual funds are required to launch a separate plan for direct investments skipping the distributor route in existing and new funds. The direct plan will have separate NAV and lower expense ratio. At present Quantum Mutual Fund offered direct investment. In others first time investment had to be through a distributor.

In order to encourage investments from small investors who may not have PAN card and bank account, cash transactions in mutual funds have been permitted to the extent of Rs 20,000 per year.

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