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SEBI has proposed that it will bring parity between direct plan and regular plan in terms of expenses charged under various heads other than distribution costs. Basically, the difference of expenses towards distribution costs should be TER of direct plans.
In a consultation paper, SEBI said that it has found instances where AMCs have charged less investment and management fees in direct plans to make it more attractive.
SEBI said, “It is understood that the TER charged to investors is based on estimations and actual expense may be higher or lower than the estimated cost. Consequently, if higher investment and advisory fees are charged to regular plan as compared to direct plan, for the same service, it may not be in the interest of investors of regular plan. The issue of difference in actual and estimated cost charged to investors can be addressed by increasing the frequency of reconciliation of TER and crediting back the difference of accrued cost vs actual cost, if any, to the respective plan at the end of the financial year/fixed frequency e.g. weekly/monthly.”
SEBI further clarified that there should be uniformity in charging of expenses other than distribution commission. SEBI said, “It is proposed that there should be uniformity in charging of each and every expense to the investor of regular plan and direct plan and the only difference between the TER of regular plan and direct plan should be the expenses towards distribution commission.”
The market regulator said 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.
