If an Asset Management Company decides to increase or decrease the Base Expense Ratio (BER) charged to a mutual fund scheme/plan, what prior notice is mandated by SEBI?

[ A ]Notice is required only 30 days after the increased expense has already been deducted from the scheme NAV.

[ B ]No notice is required if the change in expense ratio is less than 5.00% per annum.

[ C ]Notice must be communicated to investors via email/SMS and updated on the website at least 3 working days prior to effecting the change.[ CORRECT ]

[ D ]Prior approval must be obtained through a physical ballot vote of 100% of the scheme unitholders.

Takeaway

Option C is correct: Notice must be communicated to investors via email/SMS and updated on the website at least 3 working days prior to effecting the change.

Derivation

SEBI requires AMCs to prominently disclose scheme-wise TER daily on their website and AMFI's website. Any change in the Base Expense Ratio (BER) compared to previous rates must be communicated to unitholders via email or SMS at least three (3) working days prior to the effective date. Furthermore, the website notice must be updated at least three working days in advance. This tests expense transparency mandates. The common error is confusing 3 working days with 30-day fundamental attribute exit windows.

Why the others fail

A — Notice is required only 30 days after the increased expense has already been deducted from the scheme NAV.

Post-facto notice 30 days after deducting expenses is a severe regulatory violation; SEBI strictly enforces 3 working days prior notice.

B — No notice is required if the change in expense ratio is less than 5.00% per annum.

Any change in BER requires prior notice regardless of the magnitude of change to ensure complete fee transparency.

D — Prior approval must be obtained through a physical ballot vote of 100% of the scheme unitholders.

Unitholder voting is required for fundamental attribute alterations, whereas BER adjustments require 3 working days prior notice.