SEBI notifies MF reforms, allows fund houses to charge advisory fees

The Securities and Exchange Board of India (SEBI) today notified wide-ranging reforms for the mutual fund sector, which would allow fund houses to charge an investment advisory fees, besides providing incentives for expanding to small cities.

''The asset management company may charge the scheme with investment and advisory fees, which shall be fully disclosed in the offer document,'' as per the revised SEBI regulations.

In addition to the total expenses already levied on schemes, SEBI would allow the fund houses to levy brokerage and transaction costs, which is incurred for the purpose of execution of trade and is included in the cost of investment, with a ceiling of 0.12 per cent in case of cash market and 0.05 per cent in case of derivatives transactions.

Besides, mutual funds can charge additional expenses of up to 0.30 per cent of daily net assets, if the new inflows from places other than top-15 cities are 30 per cent of the gross new inflows in the scheme, or are 15 per cent of the average assets under management (year to date) of the scheme, whichever is higher.

However, in case of a fund of funds scheme, the total expenses levied on the scheme would be capped at 2.50 per cent of the daily net assets of the scheme.

''In case of a fund of funds scheme, the total expenses of the scheme, including weighted average of charges levied by the underlying schemes shall not exceed 2.50 per cent of the daily net assets of the scheme,'' SEBI said.

The changes, which would come into effect from next month, would require fund houses to make half-yearly financial results within one month of the end of every six-month period, SEBI said in a notification.

The SEBI board at its meeting on 16 August approved the new regulations, which, it said, would re-energise the mutual fund industry and expand its distribution network.