D.CHANDA

DIVISION CHIEF

IIMARP/MF/CIR/01/428/97

February 28, 1997

The Board of Trustees/ Trustee Company

Asset Management Companies/

All registered Mutual Funds/UTI

Dear Sirs,

Sub :Limitations of Fees and expenses charged to schemes and filing of offer documents of schemes

Regulation 52 of Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, inter alia provides for maximum investment advisory fees that the AMC can charge to a scheme and also lay down various items of expenses that can be levied to the mutual fund scheme. Sub-regulation 4 of the said regulation states that the asset management company may charge the mutual fund with the following expenses namely:- 

1. initial expenses of launching schemes. 
2. Recurring expenses including :- 

 

1. marketing and selling expenses including agents’ commission, if any; 
2. brokerage and transaction cost; 
3. registrar services for transfer of units sold or redeemed; 
4. fees and expenses of trustees; 
5. audit fees; 
6. custodian fees; and 
7. such other costs as may be approved by the Board. 

It has been observed from the offer documents of schemes filed with us that most of the AMCs have been including "other expenses" as item of expenditure without indicating the nature or justification of such "other expenses". Some of the funds have also been including "accounting fees" as a part of the expenses although this is not included in Regulation No. 52. This only reflects lack of proper due diligence on the part of the compliance officers of the funds and on all those responsible for preparing and approving the offer documents within the Fund. Please ensure that such type of expenses shall not be allowed to be charged to the Fund. 

Please note that in terms of the aforesaid regulations only such expenses which have been specified shall be charged to the scheme. Any other expense would need the approval of SEBI and for which the nature of the expense and the justification must be provided.

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Trustees and Asset Management Companies are advised to take proper care and exercise due diligence to ensure that all expenses charged to the scheme are clearly identified and disclosed in the offer document and they are strictly in conformity with the Regulation. 

We have also noticed that after the offer document has been filed, the AMCs have been adding features to the scheme often towards the end of the 21 day filing period.

You are advised that :

1.  

   1. any inaccurate filing of the prospectus will henceforth be returned and refiling of the document will be required and 21 days shall be reckoned for from the date of refiling; 
   2. if any changes to the offer document are made after filing, the 21 day period will commence from the date of submission of last additional statements; 
   3. the Board of AMCs as well as the Trustees shall exercise necessary due diligence in this regard; ensuring that the offer document and the fees of the scheme are in full conformity with the provisions of the Regulations.

This letter is issued in terms of Regulation No. 77 of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.

Yours faithfully, 

D.CHANDA