New Changes for Mutual Funds Will be Effective from Oct 2012 : SEBI

Market regulator SEBI has come up with a few changes for mutual fund sector, which would provide huge incentives to fund houses for expanding their business in small cities but might result in charging additional costs for investors.

SEBI notifies that, these changes would come into effect from October 1, which would require fund houses to be ready with their half-yearly financial results within one month. The decisions about mutual fund reforms were approved by SEBI last month with an aim to re-energise the mutual fund industry by expanding its network.

The new changes will allow fund houses to charge investment and advisory fees on their schemes, which should be fully disclosed in their offer documents. SEBI also allows to levy brokerage and transaction costs, which is incurred for the purpose of execution of trade. This cost is included in the cost of investment, with a cap of 0.12% and 0.05% in case of cash market and derivative transactions respectively.

Earlier, mutual funds are supposed to charge only 1.25% as fund management charge and 0.5% as distribution charge from the total expense ratio of 2.5%. Now, there is no internal limit on expense ratio. Mutual fund company can also increase expense ratio of up to 0.3%, if the mutual funds are able to reach to smaller towns other than top 15 cities in India.

Further it adds that, the expenses charged under these clauses should be utilised for distribution expenses which are increased for bringing inflows from such smaller cities. Moreover, fund houses should calculate Net Asset Value (NAV) of the scheme on daily basis and should publish it in atleast two nation-wide newspapers.