Mutual Funds to disclose total expense ratio on a daily basis

In the recent past, market regulator SEBI (Security Exchange Board of India) is taking important steps to bring in transparency in mutual fund investment. Earlier Security Exchange Board of India has sent a directive to all the asset management companies on rationalization and re-categorization of their mutual fund schemes.  AMCs are required to re-classify their existing schemes based on their asset allocation to respective schemes. The aim is to simplify the process of understanding the mutual fund offers by a layman. On Tuesday, 5th June 2018 SEBI has directed all MF companies to disclose mutual fund expense ratio on a daily basis for all the schemes on their websites. Mutual funds will have to also share the same data with industry body AMFI. Same will be available on the AMFI website as well.

Another step by SEBI that it has asked AMCs to pass on the benefits of reduction in expense charges. The body has slashed the additional expense charges from 20 basis points to 5 basis points. The changes will affect 42 mutual fund houses maintaining AUM of 23 lakh crores. This new directive will come into effect from the immediate basis.

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Mutual fund houses will have to disclose the name of the schemes, Total expense ratio (TER), additional expense, GST for both regular and direct plans of mutual funds. As per the directive, any changes in the TER or GST will have to be informed to investors via e-mail or SMS at least 3 days prior to effecting such change. SEBI has come up with this decision of showing expense ratio on the website as it comes to its notice that such frequent changes are not communicated to investors. SEBI has also directed fund houses to show scheme wise annual report on their respective website and AMFI. The annual reports will also need to e-mail to the investors whose e-mail IDs are registered with them.

What are the benefits to investors?

  • Transparency on the expense charged by mutual fund companies
  • Scheme comparison based on the expense ratio and fund performance
  • A timely update on the scheme performance (half yearly/yearly)
  • Increase in fund performance due to a reduction in the “additional expense”

Am I missing anything? Please share your views on this.

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