SEBI Circular for Disclosure of Total Expense Ratio (TER)

Feb 06, 2018 | by Avantis RegTech Legal Research Team

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The Securities and Exchange Board of India (SEBI) has issued a circular for all Mutual Funds, Asset Management Companies (AMCs), Trustee Companies and Boards of Trustees of Mutual Funds regarding any changes carried out in Total Expense Ratio (TER) and disclosure of the same.

SEBI further observed that there are frequent changes carried out in Total Expense Ratio (TER) and such changes are not prominently disclosed to investors. In this matter, SEBI has decided that AMCs shall prominently disclose, on a daily basis, the TER of all schemes under a separate head i.e. “Total Expense Ratio of Mutual Fund Schemes” on their website in downloadable spreadsheet format as per Annexure A which is provided in the circular.

SEBI also stated that any change in the base TER (i.e. TER excluding additional expenses provided in Regulation 52(6A)(b) and 52(6A)(c) of SEBI (Mutual Funds) Regulations, 1996) in   comparison   to   previous   base   TER   charged   to any   scheme   shall   be communicated  to  investors  of  the  scheme  through  notice  via  email or SMS  at least 03 working days prior to effecting such change.

Further, the SEBI circular has made it mandatory to update any change in base TER in the aforesaid section of website at least 03 working days prior to effecting such change. However, any decrease in TER due to decrease in applicable limits as prescribed in Regulation 52 (6) (i.e. due to increase in daily net assets of the scheme) would not require issuance of any prior notice to the investors. Such decrease in TER shall be immediately communicated to investors of the scheme through email or SMS and uploaded on the website.

Any change in the base TER in comparison to previous base TER charged to the scheme shall be intimated to the Board of Directors of AMC along with the rationale recorded in writing. And the changes in TER shall also be placed before the Trustees on quarterly basis along with rationale for such changes.

The circular also contains modification for SEBI Circular - SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008, and SEBI Circular CIR/IMD/DF/7/2013 dated April 23, 2013, inter-alia, which have prescribed the formats for Scheme Information Document and Placement Memorandum respectively, wherein, the following is mentioned under the head “ANNUAL SCHEME RECURRING EXPENSES” -

“The mutual fund would update the current expense ratios on the website within two working days mentioning the effective date of the change.”

 

In partial modification to the aforesaid circulars the above provision has been substituted by the following:

The mutual fund would update the current expense ratios on the website at least three working days prior to the effective date of the change.  Additionally, AMCs shall provide the exact web link  of  the  heads  under  which  TER  is  disclosed  in  their website.

This circular shall be applicable –

(i)       immediately for new schemes to be launched on or after the date of this circular and

(ii)     for all the existing schemes with effect from March 1, 2018.

 

 

URL: https://www.sebi.gov.in/legal/circulars/feb-2018/total-expense-ratio-change-and-disclosure_37707.html


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