Fintotal News Analysis | SEBI Notifies Changes in Mutual Fund Regulations
SEBI Notifies Changes in Mutual Fund Regulations
Ruby Jacob, 27 Sep 2012

Mutual funds regulator Securities and Exchange Board of India (SEBI) has notified amendment to its Mutual Fund Regulations. Most of the reform measures announced by SEBI to reenergize mutual fund industry have been incorporated through the amendment. The changes will take effect from 1 October 2012.

Significant amendments relate to the expense ratio charged by mutual fund schemes. Expense ratio on fund of fund schemes will not exceed 2.5% of daily net asset value (NAV) of the scheme. This includes weighted average of underlying schemes in the fund of funds. Asset management companies (AMCs) can charge investment and advisory fees to the scheme. In addition they can charge to the scheme brokerage and transaction costs involved in trading on stock exchanges. Expense ratio is charged to recover operational and distribution costs of the AMC.

AMCs can also charge up to 0.30% of daily NAV in the expense ratio if they 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 assets under management of the scheme. The expense ratio collected from these inflows is to be utilized for distribution efforts in those cities. If investors withdraw from such cities within 1 year, the amount collected as expense ratio on account of such inflows will have to be clawed back to the scheme.

Exit load charged to schemes as investors redeem their units in the scheme must be credited back to the scheme. Exit load cannot be siphoned off from the scheme.

AMCs have to publish half-yearly financial results on their website every six months. Daily NAV of every scheme has to be published in at least two newspapers having circulation all over India.

SEBIs directions on the launch of plans for direct investment, is still awaited.

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