SEBI Fines Nippon Life India Asset Management and Trustee for TER Violations

The Securities and Exchange Board of India (SEBI) has fined Nippon Life India Asset Management Ltd (AMC) (AMC) and Nippon Life India Trustee Ltd for violating regulations related to Total Expense Ratio (TER) charging. The regulator fined the AMC ₹2 lakh and the trustee ₹1 lakh for charging TER of various schemes to the AMC’s books, which is not permitted to ensure a level playing field for all asset management companies (AMCs), reduce portfolio churning, and promote transparency in expenses.

In its order dated August 8, SEBI stated that the AMC incurred excess expenses on certain schemes, and the trustee failed to ensure the AMC’s compliance with the regulations. An October 2018 circular mandated that all scheme-related expenses, including commission paid to distributors, must be paid from the scheme and within regulatory limits, rather than from the AMC’s books or associated entities.

SEBI’s investigation revealed that five of the AMC’s ETFs charged less than 1% TER to the schemes and charged certain scheme expenses to the AMC’s books. This was deemed a violation of the October 2018 circular. While AMCs are allowed to pay minor expenses from their books, up to a maximum of 2 basis points of the respective scheme’s AUM, the investigation found that the AMC charged more than this limit to its books for FY21 and FY22.

The AMC and its trustees argued that the schemes in question were ETFs and Funds of Funds (FoFs), primarily Direct Plan oriented, and therefore exempt from the October circular. However, SEBI’s order clarified that the circular applies to all types of schemes without exceptions.

SEBI emphasised that varying practices in TER charging could create disparities within the mutual fund industry, favouring larger AMCs with deeper pockets. This would undermine the objectives of the TER circular, which aim to ensure transparency in expenses, reduce portfolio churning, and prevent unfair practices. Therefore, the regulator rejected the AMC and trustee’s contention.

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