Various Mutual Fund Charges under the Current Regulatory Framework

POSTED BY jigneshdesai05 ON December 4, 2010 8:25 pm ONE COMMENT

Dear Respected Sir ,
                               I am an Indian Resident investing in Mutual Funds . I understand all Mutual Fund Houses except U.T.I come under the purview of the SEBI ( Mutual Funds ) Regulations , 1996 . I understand since the past few years S.E.B.I. has been taking many steps to protect interests of Investors & towards this end has brought in many amendments to the above-mentioned Regulations . However , I beg your kind attention towards a few points I would like to clarify :

Under the current regulatory framework :

1) What are the total charges (as percentage of AUM) that a Mutual Fund Scheme can charge it\’s Unit Holder (under all expense heads combined , for e.g. admin costs , marketing expenses , selling expenses , etc) ? In other words , are there any \”masked\” expenses that the investor may be getting charged other than the \”expense ratio\” ? Also , what is the maximum \”expense ratio\” that any scheme can charge ?

2) What is the total income (by way of commissions ,etc) that a Distributor can obtain from the Mutual Fund (which actually goes from the investor\’s pocket or Scheme Return ) other than the \”trail\” .

3) What is the \”trail\” currently being given by the Mutual Fund Houses to it\’s Distributors for Equity – Oriented & Debt-Oriented Schemes ?

4) Would it make any difference,now , if an investor invests in an N.F.O or an old scheme ? In other words , would he have to sacrifice any additional part from his Scheme Return other than the normal \”expenses ratio\” if he invests in an \”N.F.O\” ?

5) Also in the current scenario , can the Distributor benefit , in any way ,by encouraging the investor (his client) to keep churning his Portfolio frequently ? In other words does he get any portion from the \”Exit Load\” that the Mutual Fund charges it\’s customer ?

6) What is \”C.D.S.C.\” & does it still exist or has it been abolished ?

7) In case an Investor changes his Distributor after a certain amount of time , would the \”Trailing Fees\” for the investments made under the old Distributor be paid to the old Distributor or would they be paid to the new Distributor .

8)Under the current regulatory framework , in case an Investor changes his Distributor/Agent , who would get the trail for all the Investments that he had done through the old Distributor ? Would the trail for these Investments go to the old Distributor or to the new Distributor ?

9) I understand that \”trail charges\” are deducted from the NAV even if an investor has invested directly into the Mutual Fund Scheme . Are these \”Trail Charges\” over & above the charges deducted under \”Expense Ratio\” or are they included in the \”Expense Ratio\” ?

                             It would be very kind of you , Sir , if you could answer these questions & remove my confusion .

                             Many Thanks .

         
         

One reply on this article “Various Mutual Fund Charges under the Current Regulatory Framework”

  1. 1) Securities & Exchange Board of India has stipulated a limit that a fund can charge. Equity funds can charge a maximum of 2.5 per cent, whereas a debt fund can charge 2.25 per cent of the average weekly net assets.

    2) only trail commissions goes to Distributors, along with that, it might happen that AMC offer some prizes like foreign tours etc to the best distriubutors etc , that also goes from funds value

    3) Its different for different companies , however as a general figure you can assume .5% for equity and .2% for debt funds

    4) Yes , NFO’s are more expense , agents get upto 6% in that

    5) No

    6) No idea

    7) As per the recent rule , if a person changes a distributor , no body would be getting the future trails

    8) Old distributor would get it , trail is paid every quarter

    8) Yes

    9) Yes

    Manish

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