With an aim to revive the
mutual fund industry, market regulator
Sebi on Thursday announced a slew of financial and operational benefits and promised further long-term reforms, while asking the fund houses to reach out to investors in smaller cities.
Among the various steps approved at its board meeting on Thursday, Sebi allowed the fund houses full flexibility in using the amount charged to investors for various expenses and recommended to the central government to provide tax incentives to equity mutual fund investors.
In another measure that could increase the costs at the end of investors, the Sebi also decided that the service tax payable on investment management fees would be borne by the end user, and not the asset management company.
Talking to reporters after the board meeting,
Sebi Chairman U K Sinha also said that a committee would be set up for framing a national policy on mutual funds and it would give the recommendations in about six months.
The regulator also decided to set up a self regulatory organisation (SRO) for regulation of MF distributors.
The steps would address issues like lack of penetration of MF products, inadequate distribution network, need for greater alignment of the interest of various stakeholders, regulation of distributors and issues concerning investor protection.
The Sebi said it has also decided to develop a long-term policy including financial inclusion and tax issues for MFs to deal "with the public policy objectives of achieving sustainable growth of the mutual fund industry and mobilisation of household savings for the growth of the economy."
The Sebi said the distributors' registration process would be simplified and the distributors base would be expanded by including postal agents, retired officials from government, banks, retired teachers etc for distribution of simple products.
To improve the geographical reach of mutual funds and bring in long-term money from smaller towns, AMCs are allowed to charge additional Total Expense Ratio (up to 30 basis points) depending upon the extent of new inflows from locations beyond top 15 cities.
Asset Management Companies (AMCs) will be able to charge 30 basis points if the new inflows from these cities/towns are minimum 30 per cent of the total inflows. In case of lesser inflows, the proportionate amount will be allowed as additional TER (Total Expense Ratio).
However, MFs would be required to make complete disclosures in their half yearly report regarding the efforts to increase penetration and the details of opening of new branches especially beyond top 15 cities.
The Sebi has also asked the MFs to set apart a portion of the asset management fees annually for investor education.
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