INDUSTRY
SEBI asks mutual funds to disclose expenses separately for direct and regular plans
- IBJ Bureau
- Nov 06, 2024
Mutual fund houses will now need to disclose expenses of direct and regular plans of a scheme separately.
A circular issued on Tuesday, by the Securities and Exchange Board of India (SEBI) has detailed a standardised format for mutual fund houses to declare expenses and risks associated with their schemes.
On the need for separately disclosing details of direct and regular plans, the circular has said: “As distribution expenses and commission cannot be charged to investors of a direct plan, the expense ratio of direct plan of any scheme is lower than that of the regular plan of the same scheme, and hence, the returns of the direct and regular plans also differ.”
Therefore, disclosure of expenses should now contain separate disclosures for total recurring expenses for direct and regular plans, apart from the disclosure of total recurring expenses of the scheme.
Under the current regulatory framework for mutual funds, various disclosure requirements have been mandated, including disclosures by mutual funds with respect to expenses and risks associated with their schemes.
The SEBI has proposed the changes and sought feedback from industry experts and market participants through a consultation paper. The changes are aimed at facilitating enhanced transparency, ease of comprehension by investors and a standardised approach towards disclosures by the mutual fund industry.
The SEBI has classified investments that are not routed through distributors of mutual funds under direct plan in January 2013.
Mutual funds cannot charge distribution expenses and commissions on investors of a direct plan. Hence, the expense ratio of the direct plan of any scheme is lower than that of the regular plan of the same scheme. Consequently, owing to the difference in expenses for the direct and regular plans, the returns of the direct and regular plans also vary.
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