Background:

The Total Expense Ratio (hereinafter referred as ‘TER’) of a mutual fund refers to the total expense incurred in an accounting period with respect to the total net assets of the fund. The Securities and Exchange Board of India (hereinafter referred as ‘SEBI’) vide circular[1] SEBI/HO/IMD/DF2/CIR/P/2018/18 dated February 5, 2018, has mandated that the Asset Management Companies (hereinafter referred as ‘AMCs’) shall disclose on their website on a daily basis the TER of all schemes under a separate head ‘Total Expense Ratio of Mutual Fund Schemes’.

Rationale:

SEBI has stated that there have been very frequent changes in the TER being carried out by the AMCs, however, changes done in TER are not being disclosed to the investors in a noticeable manner. In order to help the investors take more informed decisions, SEBI has mandated such disclosure. It is important to note that this also brings uniformity in disclosure of actual TER charged to mutual fund schemes.

Applicability of the circular:

In reference to the above-mentioned circular, base TER shall mean the TER excluding additional expenses provided in Regulation 52(A) (b) and 52 (6A) (c) of SEBI (Mutual Funds) Regulations, 1996. Further, SEBI has stated that such mandatory disclosure shall apply to any new schemes to be launched and also for existing schemes with effect from March 1, 2018.

Manner of disclosure:

Apart from disclosure on a daily basis on the website, any change carried out in the base TER needs to be disclosed by the AMCs through notice to the investors of the scheme via email or SMS at least 3 working days prior to effecting such change.

Note that such change in base TER along with the rationale of such change needs to be intimated to the Board of Directors of the AMC as well. Lastly, such changes in base TER as well as the rationale for such changes shall also be required to be placed before the Trustees on a quarterly basis.