SECP in­tro­duces stan­dard­ized cri­te­ria for mu­tual funds

The Pak Banker - - COMPANIES/BOSS -

The Se­cu­ri­ties and Ex­change Com­mis­sion of Pak­istan (SECP) has di­rected all as­set man­age­ment com­pa­nies (AMCs) to cal­cu­late and dis­close to­tal ex­pense ra­tio (TER) in re­spect of all mu­tual funds un­der their man­age­ment, ac­cord­ing to the stan­dard­ized cri­te­ria in­tro­duced vide di­rec­tion num­ber 23 of 2016. The SECP be­lieves that these re­quire­ments will bring about uni­for­mity in the mu­tual funds in­dus­try and pro­vide in­vestors with an op­por­tu­nity to make in­formed de­ci­sions based on en­hanced dis­clo­sures of ex­penses in­curred by the mu­tual funds over the spe­cific pe­ri­ods.

The SECP in­tro­duced the con­cept of to­tal ex­pense ra­tio for mu­tual funds through amend­ments to the Non­Bank­ing Fi­nance Com­pa­nies and No­ti­fied En­ti­ties Reg­u­la­tions, 2008, and capped the TER ac­cord­ing to var­i­ous cat­e­gories of mu­tual funds.

In a bid to fur­ther stream­line the cal­cu­la­tion methodology, the SECP has now re­quired all AMCs to cal­cu­late the TER of each mu­tual fund on a monthly ba­sis in ac­cor­dance with a stan­dard­ized formu- la tak­ing into ac­count the to­tal ex­penses and net as­sets of that par­tic­u­lar mu­tual fund. It is now manda­tory for the AMCs to ad­just the net as­set value (NAV) of the mu­tual fund on each quar­ter end, if the fund's TER ex­ceeds the limit pre­scribed in the reg­u­la­tions. The AMCs are also re­quired to re­im­burse the ex­cess amount to the mu­tual fund on the ba­sis of an­nual TER cal­cu­lated at the end of each fi­nan­cial year.

Fur­ther­more, the AMCs shall dis­close the TER in pe­ri­odic fi­nan­cial state­ments of the mu­tual fund as well as in a monthly fund man­agers' re­port.

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