The Securities and Exchange Board of India (Sebi) is working on a framework for performance-based fees for mutual fund schemes, Ananta Barua, whole-time member of Sebi, said on Wednesday.
Speaking at the CII Mutual Fund Summit, Barua said the regulator has set up a working committee to draw up a performance-based fee structure. He said that funds that outperform the benchmark should be allowed to charge higher fees.A source with direct knowledge of the matter said on the condition of anonymity that the regulator was in direct talks with industry body Association of Mutual Funds in India (AMFI) with respect to the new framework, and that the regulator believes that the fees should not be charged in the case of underperformance by a scheme.
“We have already told AMFI to hold a dialogue with the participants, on the basis of which, they will make recommendations to us. We are in the process of creating a structure that will be far superior to the one at present, and will not have any challenges around mis-selling,” said Manoj Kumar, executive director of Sebi. The regulator earlier allowed fund houses to charge 30 bps more for retail flows from smaller cities as an incentive to distributors.
Splitting of transactions by MF distributors, churning of investments, and asset management companies not having a system to identify violations of the guidelines, were inconsistencies highlighted by the markets regulator in its letter to AMFI in March.Industry experts have earlier said that some distributors do indulge in switch transactions, which means moving money from one scheme to another. While this gets registered as new money coming into a scheme, the redemption is not actually realised by anyone, given the money is just being shifted from one scheme to another.
Kumar also said that the regulator was working on a framework for MF Lite regulations for AMCs, which would allow for easier norms and less compliance compared to the present regulations.
The regulator recognises, he said, that for fund houses offering a specific product, certain norms may not be relevant. Therefore, if there was a scope to ease the compliance burden for them, the regulator would actively work on a new set of regulations.
This was in line with Sebi chairperson Madhabi Puri Buch’s statement during the regulator’s board meeting in March. “If mutual fund regulations are of 100 pages today, the target is to bring it down to just 10 pages… and that’s going to come for passive funds,” she had said.