Sebi clarifies on MF expenses, commissions for first time investors

Only the first SIP purchased by the investor shall be eligible for upfronting and in case of multiple SIPs being purchased on different dates

Ashley Coutinho Mumbai

2 min read Last Updated : Mar 26 2019 | 1:43 AM IST

The Securities and Exchange Board of India (Sebi) has clarified that trail commissions can be upfronted for Systematic Investment Plans (SIPs) of up to Rs 3,000 per month, per scheme, for first-time investors in mutual fund schemes.

Only the first SIP purchased by the investor shall be eligible for upfronting and in case of multiple SIPs being purchased on different dates, the SIP in respect of which the installment starts on the earliest date shall be considered for upfronting, the regulator has said.

The said commission should be charged to the scheme as 'commissions' and should account for computing the total expense ratio (TER) differential between regular and direct plans in each scheme.

Fund houses can now charge an additional TER of 30 bps for getting business from retail investors from beyond the top 30 cities. Sebi has clarified that inflows of up to Rs 200,000 per transaction by individual investors shall be considered as inflows from retail investors.

The regulator has clarified that there shall be no entry load on SIPs registered prior to August 1, 2009. Earlier, norms relaxed the load requirements for SIPs on or after August 1, 2009.

As per the October 22 circular last year, scheme returns vis-à-vis the benchmark return had to be disclosed in terms of CAGR for various periods including 1-year, 3-year, 5-year and so on. Sebi has now exempted schemes in existence for less than one year other than overnight fund, liquid fund, ultra short duration fund, low duration fund and money market fund from this disclosure.

The disclosure had to include scheme AUM and previous day’s NAV. Sebi has clarified that in case of overnight and liquid schemes, the closing AUM and the average AUM of the previous month has to be disclosed on AMFI website daily. However, for cumulative AUM movement of more than 10 per cent from the previous disclosed AUM, the AUM of that day has to be disclosed. Such disclosed AUM becomes the reference AUM for future disclosure of AUM for the month.