Securities and Exchange Commission of Pakistan introduces standardized calculation and disclosure requirements for total expense ratio of mutual funds

Islamabad, July 21, 2016 (PPI-OT):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 Non-Banking 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 formula 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. The said direction is available on the SECP’s website http://www.secp.gov.pk/circulars/pdf/Cir_2016/DirectionNo_23_of_2016_20160720.pdf

For more information, contact:
Shakil Ahmad Chaudhary
Head, Internal and External Communication
Securities and Exchange Commission of Pakistan (SECP)
NIC Building, 63 Jinnah Avenue, Islamabad
Tel: +92-51-9214005 or +92-51-9214009 (Ext. 378)
Fax: +92-51-9206459
Cell: +92-302-8552254
E-mail: shakil.chaudhary@secp.gov.pk
Website: www.secp.gov.pk