SEBI Board meeting

The Board met on 28-07-2011 in Mumbai and took the following decisions in respect of Mutual Funds in India : -

(II) Review of certain policies relating to mutual funds – Amendment to SEBI (Mutual Funds) Regulations, 1996

a) Transaction charges

In order to help Mutual Funds penetrate into retail segment in smaller towns, the distributor would be allowed to charge Rs. 100 as transaction charge per subscription. No charge can be made for investments below Rs. 10,000.

An additional amount of Rs. 50 can be charged to first time Mutual Fund investor. However, there would be no transaction charge on (a) transactions other than purchases/ subscriptions relating to new inflows, and (b) direct transactions with the Mutual Fund. For SIPs, the transaction charges can be recovered in 3 or 4 instalments. The transaction charges are in addition to the existing eligible commissions permissible to the distributors.

b) Permissible activities that can be carried out by Asset Management Companies (AMCs) AMCs to manage and advise pooled assets such as offshore funds and pension funds etc. that are broad based, provided there is no conflict of interest due to differential fee structure .AMCs will continue to deal with Portfolio Management Services (PMS) under the current arrangements.

c) Transparency of information

Guidelines for advertisements will be suitably modified to include point to point return on a standard investment of Rs. 10,000 and other performance related disclosures. More granular disclosure of Assets Under Management (AUM) figures giving break up of debt/equity/balanced and also geography wise disclosures. Besides, the scheme performance will have to be disclosed against Sensex or Nifty or Government of India debt paper in addition to scheme benchmark. Performance of fund manager across all schemes managed by the same fund manager will have to be disclosed.

d) Distributors of Mutual Fund Products

As a first step towards regulating distributors of Mutual Funds, selected distributors will be regulated through Asset Management Companies (AMCs) by putting in place the due diligence process to be conducted by AMCs. The due diligence process may be initially applicable for those distributors satisfying one or more of the following criteria:

Multiple point presence in more than 20 locations

AUM raised over Rs.100 crore across industry in the non institutional category but including high networth individuals (HNIs)

Commission received of over Rs. 1 crore p.a. across industry

Commission received of over Rs. 50 lakh from a single mutual fund

It is estimated that this measure will cover distributors handling about half of the total AUM in the industry. AMCs shall disclose the commissions paid to the distributors meeting one or more of the above criteria and AMFI will disclose the aggregate amount of commissions paid to such distributors by the MF industry.

e) Common Account Statement

One common account statement will be dispatched every month for investors who have transacted in any of his folios across the mutual funds. The statement shall also contain the disclosure related to the transaction charge paid to the distributor. One common account statement will be dispatched to the investor every half year for all nontransacted folios.

f) Green initiative and cost effective measures

In case of unit holders whose email ids are registered for receiving Annual Reports by email, the scheme annual reports would be sent by email. In case of unit holders whose email ids are not registered with the Mutual Fund and the investors who request for hard copies notwithstanding their registration of email ids, the AMCs shall continue to send hard copies of scheme annual reports.

g) All the Operations of a Mutual Fund to be located in India

All the operations of a Mutual Fund including trading desks, unit holder servicing, and investment operations shall be based in India. Mutual Funds having any of their operations abroad, will be required to immediately confirm that they shall wind up the same and bring them onshore within a period of one year from the notification amending the Regulations. The period is extendable by another one year on SEBI’s discretion.