The Securities and Exchange Board of India (SEBI) has mandated various regulatory changes vide their Circular no. CIR/IMD/DF/21/2012 dated September 13, 2012 and SEBI (Mutual Funds) (Second Amendment) Regulations, 2012. This communication is intended to update you on these regulatory changes which you need to know as a mutual fund unit holder. These changes would be effective from October 1, 2012 (hereafter referred to as the “Effective Date”). We urge you to read and note the contents.
A. Fees and expenses
Investment Management & Advisory Fee: The AMC may charge the Scheme(s) with investment and advisory fees within the limits of total expenses prescribed under Regulation 52 of the SEBI (Mutual Funds) Regulations 1996.
Brokerage & transaction costs: Brokerage and transaction costs incurred for execution of trades and included in the cost of investment shall be charged to the Scheme(s) in addition to the limits on total expenses prescribed under Regulation 52(6). Currently, SEBI has prescribed that these expenses shall not exceed 0.12 per cent of the value of trades in case of cash market transactions and 0.05 per cent of the value of trades in case of derivatives transactions.
Service Tax on Fees & Expenses: Service Tax on investment and advisory fees shall be charged to the Scheme(s) in addition to the limits on total expenses prescribed under Regulation 52(6). Service Tax on expenses other than investment and advisory fees, if any, (including on brokerage and transaction costs on execution of trades) shall be borne by the Scheme(s) within the limits of total expenses prescribed under Regulation 52(6).
Additional expenses for geographical penetration: To improve the geographical reach of the Scheme(s) in smaller cities / towns, as may be specified by SEBI from time to time, expenses not exceeding 0.30 per cent of daily net assets may be charged to the Scheme(s), in addition to the limits on total expenses prescribed under Regulation 52(6) of the SEBI (MF) Regulations, subject to certain conditions. The amount so charged shall be utilized for distribution expenses incurred for bringing inflows from such cities. However, the amount incurred as expense on account of inflows from such cities shall be credited back to the Scheme(s) in case the said inflows are redeemed within a period of one year from the date of investment. Currently, SEBI has specified that the above additional expense may be charged for inflows from beyond ‘Top 15 cities’. Top 15 cities shall mean top 15 cities based on Association of Mutual Funds in India (AMFI) data on ‘AUM by Geography - Consolidated Data for Mutual Fund Industry’ as at the end of the previous financial year.
Additional expenses under Regulation 52 (6A)(c): Additional expenses, not exceeding 0.20 per cent of daily net assets, may be charged to the Scheme(s) towards Investment Management and Advisory Fees and the various sub-heads of recurring expenses mentioned under Regulation 52 (2) and (4) respectively, in addition to the limits on total expenses prescribed under Regulation 52(6).
Investor Education and Awareness initiatives: The AMC shall annually set apart at least 2 basis points (i.e. 0.02%) on daily net assets of the Scheme(s) within the limits of total expenses prescribed under Regulation 52, for investor education and awareness initiatives undertaken by the Fund.
Exit Load: All exit loads (net of service tax) charged, if any, from the Effective Date, shall be credited to the Scheme(s).
Thus, the total expenses of the Scheme(s) including the investment management and advisory fee shall not exceed the limits as specified under Regulation 52 of SEBI (MF) Regulations.
B. Single plan structure for schemes
Mutual funds/AMCs shall launch schemes under a single plan and ensure that all new investors are subject to single expense structure. Existing schemes with multiple plans based on the amount of investment (i.e. retail, institutional, super-institutional, etc) shall accept fresh subscriptions only under one plan. Other plans will continue till the existing investors remain invested in the plan. For details on the changes affecting our schemes/plans please read our addendum (see link below).
C. Harmonizing applicability of NAV across schemes
Under all Schemes (other than liquid schemes), in respect of applications for purchase / switch-in of units of an amount equal to or more than Rs. 2 lakh, the closing Net Asset Value (NAV) of the Business Day on which the funds are available for utilization shall be applicable provided that:
1. Application for purchase / switch-in is received before the applicable cut-off time.
2. Funds for the entire amount of subscription / purchase / switch-in as per the application are credited to the bank account of the respective schemes before the cut-off time.
3. The funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective scheme.
Where application is received after the cut-off time on a day but the funds are cleared on the same day, the closing NAV of the next Business Day shall be applicable. All multiple applications for investment (at the first holder’s PAN level) in a particular scheme (irrespective of the plan / option / sub-option) received on the same Business Day, will be aggregated to ascertain whether the total amount equals to Rs. 2 lakh or more and to determine the applicable NAV. For investments of an amount equal to or more than Rs. 2 lakh through systematic investment routes such as Systematic Investment Plans (SIP), Systematic Transfer Plans (STP), Flex STP, Swing STP, FLEXINDEX Plan, the units will be allotted as per the Closing NAV of the day on which the funds are available for utilization by the Target Scheme.
D. Prudential limits and disclosures on portfolio concentration risk in debt-oriented schemes
As specified by SEBI, the total exposure in a particular sector (excluding investments in Bank CDs, CBLO, Government Securities, T-Bills and AAA rated securities issued by Public Financial Institutions and Public Sector Banks) shall not exceed 30% of the net assets of debt scheme(s) of the Fund and this requirement shall be complied with on or before September 12, 2013.
E. Periodic disclosures
1. Scheme Portfolio:
Portfolio of the Schemes as on the last day of the month will be available on the website by 10th of the next month.
2. Half Yearly Financial Results:
Half Yearly Financial Results: Schemes un-audited half-early financial results will now only be available on the website within 1 month of close of half year ended March 31 and September 30 each year.
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