The Securities and Exchange Board of India (SEBI) on Monday reviewed and modified the commission and disclosure norms for the mutual fund industry.
In October 2018, the market regulator had asked asset management companies (AMC) to adopt a full trail model of commission in all of their schemes while allowing upfronting of trail commission only in case of inflows through systematic investment plans (SIPs).
Upfront commissions are one-time payments made by the AMC to the distributor when a mutual fund is sold to an investor. Trail commission is a recurring commission to be paid to distributors until the investment is withdrawn.
The conditions for upfronting of trail commission was modified based on SIP inflows at the mutual fund level.
- "The upfronting of trail commission may be for SIP of up to Rs 3,000 per month, per scheme, for an investor who is investing for the first time in mutual fund schemes," said SEBI in a circular.
- The commission will be paid from AMC's books and only the first SIP(s) purchased by the new investor will be eligible for upfronting.
- In case multiple SIP(s) are purchased on different dates, the SIP(s) for which the installment starts on the earliest date will be considered for upfronting.
- For computation of the TER (Total Expense Ratio) differential between regular and direct plans in each scheme, the commission will be accounted for. TER is a percentage of a scheme's corpus that an AMC charges towards its administrative and other expenses.
- For the purpose of charging additional TER from on inflows from retail investors from beyond top 30 cities (B-30 cities), inflows of up to Rs 2 lakh per transaction by individual investors will be considered as inflows from retail investor.
- AMCs are required to disclose the TER of all mutual fund schemes on their website on a daily basis except for infrastructure debt fund schemes.
- Issuance of prior notice to the investors will not be required to inform of any increase or decrease in TER due to change in asset under management (AUM) or other regulatory requirements.
- Schemes in the category of overnight fund, liquid fund, ultra-short duration fund, low duration fund, and money market fund will be exempted from making performance disclosure provided that the schemes are in existence for less than one year.