Mutual funds: AMCs asked to disclose total expense ratio

This will allow investors to make informed decisions

ISLAMABAD: 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 in accordance with the standardised criteria.

The SECP says it believes that this requirement will bring uniformity in the mutual funds industry and provide investors with an opportunity to make informed decisions based on enhanced disclosure of expenses incurred by the mutual funds over specific periods, according to a statement issued on Thursday.

The SECP introduced the concept of TER for mutual funds through amendments to the Non-Banking Finance Companies and Notified Entities Regulations 2008 and capped the ratio according to various categories of mutual funds.

In a bid to further streamline the calculation methodology, the SECP now requires all AMCs to calculate the TER of each mutual fund on a monthly basis in accordance with a standardised formula taking into account the total expenses and net assets of that particular fund.

It is now mandatory for the AMCs to adjust the net asset value (NAV) of the mutual fund at the end of each quarter, 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 will disclose the TER in periodic financial statements of mutual funds as well as in the monthly fund managers’ report.

Published in The Express Tribune, July 22^nd, 2016.

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