SEBI has barred close ended funds from charging an additional 20 bps TER in lieu of exit loads.
In a circular, SEBI said, “It is clarified that mutual fund schemes including close ended schemes, where in exit load is not levied / not applicable, the AMCs shall not be eligible to charge the above mentioned additional expenses for such schemes. Further, existing Mutual Fund schemes including close ended schemes, wherein exit load is not levied / not applicable, shall discontinue, with immediate effect, the levy of above mentioned additional expenses, if any.”
SEBI had allowed fund houses to charge an additional TER to the extent of 20 bps with effect from October 2012 in lieu of exit loads. Also, the market regulator had mandated that the entire exit load should be credited back to the schemes.
Generally, close ended funds have a lock in period of three years to five years and have no exit load period. While the industry manages Rs.32,000 crore in close ended equity funds, Rs.1.19 lakh crore was in close ended debt funds as on December 2017. A rough calculation shows that the industry is charging close to Rs.64 crore in close end equity funds and Rs.238 crore in close end debt funds in lieu of exit loads.
Earlier, in December 2015, SEBI had barred new tax saving schemes from charging such an additional fee.
Currently, most closed end schemes are charging an additional 20bps. In fact, a few no-load schemes are also charging this additional expense from investors.
The move will reduce cost of ELSS and close end equity funds.
