Existing investors dealing through distributors will now have to incur transaction cost of Rs 100 for investments of Rs10,000 and above in mutual funds, while those making new investments would be charged Rs150. But if the investment amount is less than Rs 10,000 and if someone is making an investment for the first time then the cost charged by the distributors will be Rs 50.
However, there will not be any transaction charge on direct transactions with mutual fund or transactions not related to new inflows. It also makes clear that for SIPs, the transaction costs will be recovered in 3-4 installments.
The rationale for these rules by the SEBI was that mutual fund investment has come down in the country on account of scrapping the distribution commission. So the new incentives will not be unfair for both the parties, investor and distributors alike.
On the transparency angle also the regulator directed the mutual fund house to disclose more information so that investors can take more informed decision.
Advertisements should include the point-to-point return on a standard investment of Rs 10,000. Also the asset under management give proper break-up between the equity, debt and balanced, and the geography wise disclosure.
Performance of the scheme should be disclosed against the Sensex or Nifty or the Government of India debt paper besides the scheme benchmark. This will give the investor better idea about the performance of the fund (scheme).
Also it would be mandatory to disclose the performance of the fund manager across all schemes (funds) managed by the same fund manager.
Adding to the list of changes was one common account statement has to be sent every month for investors if they have transacted in any of their folios across the mutual funds. The statement will also contain the transaction charges that are paid to the distributors. And once every six month the common account statement should be dispatched to the investor every half year for all non-transacted folios.
To reduce cost and be environmental friendly the regulator has said that if a unit holder has an email then they can subscribe to scheme annual reports by email. In case if there is no email id with the Mutual Fund and the investor request for hard copies irrespective of their email id then the AMC must provide for it.
View: All the changes are for the good. And while many would moan over the fact that the regulator has brought back the commission charges but there are two important things that should be noted. First these charges are not hidden and not adjusted within the investment amount. Second, if the investment is made directly then there is no such cost! Considering these two aspects and looking at the retard growth in the mutual fund industry since the commission aspect was removed the new rules are desirable.