Putting an end to the confusion over which duration to take for charging additional expense ratio in case fresh inflows come from smaller towns, the capital markets regulator on Wednesday said that new inflows from such cities should make at least 15% of the average assets under management (year to date) of the scheme or 30% of gross new inflows in the scheme.
In a statement, Securities and Exchange Board of India (Sebi) said that expenses charged thus should be utilised for distribution expenses incurred for bringing inflows from such cities. This means that fund houses can use the additional fees only in such cities in marketing and distribution.
Further, the regulator said that amount incurred as expenses on account of inflows from such cities shall be credited back to the scheme in case the said inflows are redeemed within a period of one year from date of investment.
In August, Sebi had announced that mutual fund houses could charge 30 basis points additional expense ratio provided they bring 30% of fresh inflows from beyond top 15 cities. The steps are being taken in order to help penetration of mutual fund products in the tier-I, II cities and smaller towns.
Currently, close to 75% of industry's assets flow in from country's top five cities - Mumbai, Delhi, Kolkata, Chennai and Bangalore.