Fintotal News Analysis | SEBI Proposes Mutual Fund Reforms
SEBI Proposes Mutual Fund Reforms
Ruby Jacob, 28 Aug 2012

Finally the ailing mutual fund industry seems to be getting appropriate treatment from its regulator. Securities and Exchange Board of India (SEBI) released another set of reforms a couple of days ago that was received favourably.  

All of the recommendations and decisions are aimed at giving a boost to the mutual fund industry which is having dry days. SEBI has allowed asset management companies (AMCs) to break up the expense ratio which is charged towards fund management, administrative and other expenses. AMCs might pass some of the higher costs on to the distributors. However smart investors can choose direct investment bypassing the distributor route. 

In order to get mutual funds to penetrate smaller cities and towns SEBI will incentivize AMCs through a higher expense ratio. They will be able to charge an additional 30 basis points on expense ratio if they manage to get a minimum of 30% of inflows from cities and towns beyond the top 15 cities. 

Like in all other services SEBI has allowed AMCs to charge service tax on investors. Before this it was charged to the AMC. 

Exit load will have to be ploughed back to the fund's assets according to the new decisions. Exit load is charged while an investor redeems units from a fund before a specified time period. For equity funds this is one year. 

SEBI would also recommend to the government to include investments in equity mutual funds in the newly launched Rajiv Gandhi Equity Savings Scheme (RGESS).   

As an investor one of the sure outcomes of the new decisions will make mutual funds more expensive. Some of them could get even more expensive than ULIPS.

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