MF News Allow fund houses allocate some expenses in direct plans, AMFI requests SEBI

Allow fund houses allocate some expenses in direct plans, AMFI requests SEBI

It is claimed that marketing costs and other expenses in direct plans have gone up due to low volume.
Nishant Patnaik Feb 12, 2019

AMC officials are claiming that they have been facing difficulty in maintaining difference between the expense ratio of direct and regular plans to the extent of the distribution commission.

In a letter sent to SEBI, AMFI has requested the market regulator to allow fund houses to allocate some expenses in direct plans.

Earlier, SEBI had clarified that all fees and expenses charged in a direct plan (in percentage terms) under various heads including the investment and advisory fee should not exceed the fees and expenses charged under such heads in a regular plan. Simply put, the difference between the expense ratio of direct and regulator plans would now be to the extent of distribution commission.

However, the expense ratio of direct plans has reportedly gone up under the new TER regime. Fund officials said that expenses incurred towards KYC and marketing costs such as printing of application form and fact sheets has increased due to lower volume of direct plans.

Since the volume of regular plans is significant, the benefit of economies of scale comes into picture that reduces such costs. However, this may not be possible for AMCs in direct plans, said fund officials. Currently, many fund houses charge most expenses on AUM basis.

AMFI said, “It is submitted that it will be more appropriate to allocate some expenses, due to their nature, among regular and direct plans based on transaction count, folio count. We therefore request SEBI to address this with suitable clarification.”

If SEBI allows fund houses to go for such pricing in a few components of direct plans, the TER could go up or down depending on volume of direct plans.

Further, AMFI has sought clarification from SEBI if fund houses need to issue a notification to investors if they reduce TER. “Selling and distribution expense component in the regular plan component will keep changing depending of flows, AUM size, brokerage rates, sales activities etc. This will therefore, necessitate adjustment of management fees in the regular plan to ensure that the overall TER limits are adhered to. The above will entail alignment of management fees in the direct plan, which will result in a change in the base TER of the direct plan. It is our understanding that such a change, if downwards, will not necessitate an advance notification to investors.”

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KB · 2 months ago
At the same time, the extra commission allocated for B-30 cities should also be charged to Direct or float have a separate NAV for them. Why should regular bear the brunt of the extra incentive
Vikas · 2 months ago
Very rightly said
Shashank Rane · 2 months ago
Why Direct funds have to bear such cost where investor directly takes a fund from AMC' agent or advisor is involved...SEBI should not allow this to happen in the interest of direct funds investors
Sanjay jotwani · 2 months ago
The regular plans are bearing all the expenses. The direct plans are free from all expenses. This is incorrect.

Also in amc offices, the direct clients visit while the distributors visit are less. Hence even the entire office expenses are charged to regular plans.

As a distributor, we don't need amc offices. Hence AMC should charge all office expenses including staff salaries to direct plans.

ARVIND PRASAD · 2 months ago
Very true in respect to minimize the TER our humble request to all the AMC kindly close all the offices across B30 location and if possible include T30 also or inspite of that if they required office kindly switch it from regular to direct mode to control the TER of regular plan .we as an IFA don't required the office support we are also on the investor side and think for the betterment of the investor as SEBI . After that we will see kisme kitna hai dum.
Koushik Ash · 2 months ago
That's very logical. Very seldom we advisors visit AMC offices and in this case regular plans should also be restrained from the office running expenses and staffs salaries to that extent.
Another issue which I don't find logical is all these restrictions and transparency factors, rules and regulations is imposed on Mutual Fund industry only. Why Insurance industry is not that much kept under surveillance.
Pragnesh · 2 months ago
Why only Mutual fund, also keep such transparency in all products be it financial or non financial # Like Property / FMCG / Any Service Industry (whether regulated by SEBI or other Body or GOI).

We all IFA's work hard to get investor, handle their all emotions when there is volatility and keep them invested in funds to safe guard their interest first
Vikas Gupta · 2 months ago
I totally agree with Mr ARVIND PRASAD & Mr Koushik Ash. Office expanses including Staff salary should be from Direct Plans. Please implement all these Investor related benefits in all Financial products.
Rajesh · 2 months ago
Very true, in last 5 years, I never visited any AMC office which is sufficient enough proof that even without any support of local AMC office, a distributor can easily work. So better to close all the amc offices to further reduce the cost which may be passed on to the so called DIRECT investors. Mutual Funds Sahi Hai !!!
Ratnesh · 2 months ago
Too much disgusting , why investors bear any cost in direct plan. AMC CAN forcely charge from investors in direct plan
Jay prakash Yadav · 2 months ago
Good idea...because direct fund investors want knowledge henceforth visit this cost to direct plan....or AMC should divide mark to mark expense ratio as compared to volume of direct and regular plan not cost of regular plan...
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