SEBI has clarified that AMCs will have to disclose TER of scheme both scheme-wise and date-wise on their and AMFI’s website in a downloadable spreadsheet format.
Also, the market regulator has done away with the requirement of issuing notice to investors if there is reduction in TER and increase or decrease in TER due to change in AUM.
On performance disclosure of short term funds such as overnight funds, liquid funds, ultra short term funds, low duration fund and money market fund, SEBI said that AMCs will have disclose short term performance of such schemes i.e. 7 days, 15 days, 1 month, 3 months and 6 months.
Since AUM of liquid funds changes frequently, SEBI has asked AMCs to disclose closing AUM and AAUM of the previous month on daily basis. However, if the AUM movement of the schemes is over 10% from the previous disclosed AUM, AMCs will have disclose the AUM of that day, said SEBI.
Another key development is allowing fund houses to charge up to 2bps of the scheme AUM or actual cost whichever is lower from AMC book for operational expenses such as registration of SIPs, payment gateway charges, transaction platform charges, annual custody fees, call centres fees, RTA NFO charges, CKYC charges, KRA charges and so on. However, SEBI has clarified that these charges have to be small in value and high in volume.
SEBI has asked AMFI to make a list of these expenses in consultation with the market regulator through best practices circular. AMFI is expected to submit its recommendation soon.
In addition, SEBI has allowed fund houses to use AMC’s book if the borrowing cost exceeds running yield or yield to maturity (YTM) of the scheme portfolio. The market regulator has clarified that the cost of borrowings by a mutual fund scheme would be adjusted against the portfolio yield and if the cost of borrowings exceeds such a yield, then fund houses can use the AMC book to repay additional interest on such borrowing.
Simply put, if a scheme carries yield to maturity of 8% and borrows money at 8.5% to meet its redemption pressure, the fund house managing such a scheme has to pay additional interest of 0.5% from the AMC book ensuring that the scheme expenses remain intact.
SEBI norms allow fund houses to borrow up to 20% of the total AUM to meet redemption pressure.
