Sebi fines DSP Investment Managers for bearing expense ratio of DSP Nifty 50 ETF from its books

Markets regulator Sebi has levied a fine of Rs 1 lakh each on DSP Investment managers and DSP Trustee for bearing the expense ratio of Nifty 50 ETF scheme onto its own books. The DSP Nifty 50 ETF was launched in 2021 December and the total expense ratio was supposed to be 0.16%. However, the fund house charged just 0.07% from the scheme and soaked up the remaining 0.09% on its own books.

Sebi said even though the amount of expense of scheme borne by the AMC was miniscule at Rs 53,238, it cannot ignore the gravity of violations involved in the matter as total expense ratio of a scheme is one of the important parameters for investors while taking investment decisions.

Sebi rules mandate that all scheme-related expenses including commission paid to distributors must be paid from the scheme only and not from the books of the asset management companies.

“By absorbing the expenses, the intention of the DSP Investment Managers was to solely keep the expense ratio competitive to attract investors and scale up the assets under management (AUM), since the scheme’s expense was in actual 0.16% whilst it has disclosed TER of 0.07%,” Sebi circular said.

The regulator said the practice of paying the expenses of the scheme from AMC books can only be afforded by profitable AMCs or AMCs with deep pockets whereas small AMCs won’t be able to bear such expenses from their books. “Disclosing incorrect TER of scheme which will create anomalies in the Mutual Fund industry and will lead to unhealthy competition in the mutual fund industry,” the Sebi circular said.

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