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Saturday, July 4, 2009

No entry load for all Mutual Fund (MF) scheme,all expenses out of 1% Exit load & disclosure of all commissions to distributors from 1st August 2009

SEBI Mutual Fund amendments

a) There shall be no entry load for all mutual fund schemes.
b) The scheme application forms shall carry a suitable disclosure to the effect that the upfront commission to distributors will be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor.
c) Of the exit load or Contingent Deferred Sales Charge (CDSC) charged to the investor, a maximum of 1% of the redemption proceeds shall be maintained in a separate account which can be used by the Asset Management Company (AMC) to pay commissions to the distributor and to take care of other marketing and selling expenses. Any balance shall be credited to the scheme immediately.
d) The distributors should disclose all the commissions (in the form of trail commission or any other mode) payable to them for the different competing schemes of various mutual funds from amongst which the scheme is being recommended to the investor. [Regulation 77 of SEBI (Mutual Funds) Regulations, 1996]

AMCs shall follow the provisions pertaining in clause 5(2)(b) of SEBI Circular SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008 regarding updation of Scheme Information Document (SID) and Key Information Memorandum (KIM) in this respect.

This circular shall be applicable for
a. Investments in mutual fund schemes (including additional purchases and switch-in to a scheme from other schemes) with effect from August 1, 2009 ;
b. Redemptions from mutual fund schemes (including switch-out from other schemes) with effect from August 1, 2009 ;
c. New mutual fund schemes launched on and after August 1, 2009; and
d. Systematic Investment Plans (SIP) registered on or after August 1, 2009.

Source: Mutual Funds - Empowering investors through transparency in payment of commission and load structure

Relevant Existing provisions

1. SEBI had earlier abolished initial issue expenses and mutual fund schemes were allowed to recover expenses connected with sales and distribution through entry load only. Further, investors making direct applications to the mutual funds were exempted
from entry load.
2. In terms of existing arrangement, though the investor pays for the services rendered by the mutual fund distributors, distributors are remunerated by Asset Management Companies (AMCs) from loads deducted from the invested amounts or the redemption proceeds. SEBI (Mutual Funds) Regulations, 1996 also permit AMCs to charge the scheme (under the annual recurring expense) for marketing and selling expenses including distributor’s commission.
3. Further, all loads including Contingent Deferred Sales Charge (CDSC) for the scheme are maintained in a separate account and this amount is used by the AMCs to pay commissions to the distributors and to take care of other marketing and selling expenses. It has been left to the AMCs to credit any surplus in this
account to the scheme, whenever felt appropriate. In order to incentivise long term investors it is considered necessary that exit loads/CDSCs which are beyond reasonable levels are credited to the scheme immediately.

SEBI/IMD/CIR No. 4/ 168230/09 dated 30th June 2009


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mutual fund said...

Really great information. Hoping you will be there with more information on mutual funds.

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