FinMin asks Sebi to review MF charges

Tells regulator to consult advisory panel before imposing transaction charge on mutual funds.

The finance ministry has asked the Securities and Exchange Board of India (Sebi) to take a second look at its decision to introduce transaction charges for mutual fund agents, according to two officials familiar with the development.

The ministry had asked the regulator to place the proposals before the Mutual Fund Advisory Committee (MFAC) and take its views before proceeding with the implementation, one of the officials said. Sebi officials were not available for comment.

In a meeting on July 28, Sebi had decided to incentivise agents by asking investors to pay a charge of Rs 100 on every transaction of Rs 10,000 and above. On transactions by first-time investors, the agents would earn a fee of Rs 150, the regulator had said.

ANOTHER U-TURN?

• The finance ministry received representations from investors
• Charges were based on a special committee report
• Investor representative in special committee objected to the move
• MF Advisory Committee not consulted before move
• Special committee report not put up for public comments

The circular describing the working rules was issued by Sebi in August. However, many fund houses are yet to implement it fully, largely due to operational issues. “We expect to implement it by December 1,” said the chief operating officer of one of the top five fund houses of the country.

The government move to ask for a review of the decision came a few weeks back, after investors made several representations to the ministry, alleging that it was a move to bring back entry loads. Investors Grievances Forum (IGF), a Mumbai-based investor association, was one of the entities that made representations to the finance ministry. S Vedula of IGF confirmed a representation was made against the transaction charges. “We wrote to the ministry some time back,” he said.

Under Section 16 of the Sebi Act, the central government can issue directions to the market regulator on policy issues. The government has the discretion to decide if an issue relates to policy or not.

An MFAC member said the issue of transaction charges was discussed briefly in the newly formed advisory committee last month, without any formal decision being made.

“There was a brief discussion on transaction charges in the October meeting. But, nothing was decided,” said M S Apte of investor association Lokmanya Seva Sangh. It was decided to focus on developing the mutual fund industry and expand the reach to small towns, added Apte, also an MFAC member.

MFAC was not originally consulted on the issue of introducing transaction charges. Instead, Sebi chairman U K Sinha had constituted a special committee, including two Sebi officials, Amfi chief executive H N Sinor, Karvy Computershare CEO V Ganesh, Value Research CEO Dhirendra Kumar, IGF’s Narendra Mehta and G Sethu of the National Institute of Securities markets. In June, the committee recommended reintroduction of transaction charges. However, recommendation was not put up for public comments, as was the usual practice on policy moves.

Kumar of Value Research said, “The committee had fairly intense discussions and decided to recommend the transaction charges with full understanding.”

According to him, the charges made sense for distributors in smaller cities. On the objections the move has faced, Kumar said these had been from investor associations. “They always object to everything. Often, they lack perspective. Things must be given time to settle down,” said Kumar, also a member of MFAC.

MFAC, which was reconstituted in September, was expected to have a meeting in the coming weeks, officials said.