"The SEBI Board took note of the lack of penetration of mutual fund products, inadequate distribution network, need for greater alignment of the interest of various stakeholders, regulation of distributors and issues concerning investor protection, and has approved some immediate steps as given below and has decided to develop a long term policy including financial inclusion and tax issues for mutual funds to deal with the public policy objectives of achieving sustainable growth of the mutual fund industry and mobilisation of household savings for the growth of the economy," the markets regulator has stated.
The following steps have been now been taken.
I. Increase in penetration of mutual fund products and energising distribution network
1. To accord flexibility and bring cost effectiveness, fungibility of Total Expense Ratio (TER) is allowed.
2. To energize the distribution system and to increase the 'feet-on-street' in distribution, it was decided to:
i. Simplify the distributors' registration process and increase base of mutual fund distributors by including postal agents, retired officials from government, banks, retired teachers etc. for distribution of simple products.
ii. Introduce varied levels of certification and registration depending on products & services offered.
Iii. Reduce fees for NISM certification and AMFI registration.
II. Improve reach of MF products in smaller cities/ towns (beyond top 15 cities)
1. To improve the geographical reach of mutual funds and, bring in long term money from smaller towns, AMCs are allowed to charge additional TER (upto 30bps) depending upon the extent of new inflows from locations beyond top 15 cities. AMCs will be able to charge 30 bps if the new inflows from these cities/ towns are minimum 30% of the total inflows. In case of lesser inflows the proportionate amount will be allowed as additional TER.
2. Mutual funds shall make complete disclosures in the half yearly report of Trustees to SEBI regarding the actual efforts of the mutual funds to increase penetration and the details of opening of new branches especially beyond top 15 cities.
III. Alignment of interest of investors, distributors and AMCs
1. In order to have greater and more focused investor education, it was decided that the industry should set apart a portion of the asset management fees annually for the investor education campaign.
2. To avoid differential treatment in the same scheme to different classes of investors, it was decided that all new investors will be subjected to single expense structure under a single plan. However, to be fair to direct investors and promote direct investment, it was decided to have a separate plan for direct investments, with a lower expense ratio.