Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs3 lakh on Nippon Life India Asset Management Ltd (Rs2 lakh) and Nippon Life India Trustee Ltd (Rs1 lakh) for charging total expense ratio (TER) or scheme expenses to asset management company (AMC) books.
In
an order, Barnali Mukherjee, adjudicating officer (AO) of SEBI says, "I observe that Nippon Life India Asset Management by bearing excess expenses of the scheme from the books of the AMC has violated the provisions of Clause A (1) of SEBI Circular dated 22 October 2018 which requires that all scheme related expenses shall necessarily be paid from the scheme only within the regulatory limits and not from the books of the AMC, its associate, sponsor, trustee or any other entity through any route."
During the examination, SEBI observed from the TER structure that, in five exchange-traded funds (ETFs), Nippon Life India Asset Management has charged less expense to the schemes than the actual expense incurred. Further, it alleged that Nippon Life India Trustee, by not ensuring compliance with SEBI circulars, violated Regulation 18(9) read with Regulation 77 of SEBI (Mutual Funds) Regulations, 1996.
The SEBI AO says, "I note that the combined reading of the regulation 52(5) and 52(7) of the mutual fund regulation and the TER circular makes it clear that all the scheme-related expenses shall necessarily be paid from the scheme only within the regulatory limits (in the present case the regulatory limit is 1%) and restrict the AMC to charge the expenses of the scheme upto 1% from its own books."
SEBI observed that for the Nippon India ETF dividend opportunities scheme, for FY20-21 TER was 1.1905%, wherein expense ratio charged to AMC books was 1.0424% and expense ratio charged to the scheme was 0.1481%, for the same scheme in FY23-22 the TER was 0.7344% and the expense ratio charged to the scheme was 0.1739% whereas the expense ratio charged to AMC books 0.5605%.
Similarly, in the Nippon India ETF Long-term Gilt scheme for FY21-22, the TER was 0.2946%, wherein the expense ratio charged to the scheme was 0.0864% and the expense ratio charged to AMC books was 0.2082%. In the Nippon India ETF Nifty BeES (benchmark exchange traded scheme) scheme for FY21-22, TER is 0.0713%, where the expense ratio charged to the scheme was 0.0500% and the expense ratio charged to AMC books was 0.0213%.
In Nippon India ETF Sensex Next 50 TER is 0.5660%, wherein the expense ratio charged to AMC books was 0.3497% and the expense ratio charged to the scheme was 0.2163%. In Nippon India ETF 5-year Gilt for FY21-22 TER is 0.3246%, wherein the expense ratio charged to the scheme was 0.0860% and the expense ratio charged to AMC books was 0.2386%.
In Nippon India Junior BeES fund of funds (FoF) for FY20-21 direct plan TER was 0.0500%, wherein the expense ratio charged to the scheme was 0.0200% and the expense ratio charged to AMC books was 0.0300% and for the same scheme's regular plan FY20-21 TER was 0.3100% while expense ratio charged to the scheme was 0.2800% and the expense ratio charged to AMC books was 0.0300%.
SEBI says Nippon Life India Asset Management can charge higher TER to the scheme, i.e., up to 1% TER; however, it has charged less than 1% expense to the schemes as against actual expense incurred by the schemes and charged more than 0.02% expense ratio to its AMC books.
"In the instant matter, Nippon Life India Asset Management has not even exhausted the maximum permissible total expense ratio permitted under Regulations 52(6) and (6A) of SEBI (Mutual Funds) Regulations, 1996 (i.e. of 1%) in the case of the five ETFs and one BeEs FoF and the charged the expenses of these schemes to the AMC books," the SEBI order says.
