AMCs, PFMs: SECP replaces TER capping regime with caps on management fees wef July 1

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has replaced existing Total Expense Ratio (TER) capping regime with caps on management fees for Asset Management Companies (AMCs) and Pension Fund Managers (PFMs), effective July 1, 2025.

The SECP has notified the final amendments to the Non-Banking Finance Companies and Notified Entities Regulations, 2008. These reforms primarily focus on revising the Total Expense Regime for mutual funds and pension funds while introducing significant measures to enhance the Shariah compliance framework within the mutual fund industry.

As part of the amendments, the existing Total Expense Ratio capping regime will be replaced with caps on management fees, effective July 1, 2025. This transition period provides AMCs and PFMs with adequate time to adjust their business strategies. To improve transparency and aid investor decision-making, AMCs and PFMs must also provide detailed TER disclosures for mutual funds and pension funds.

The following Management Fee caps for a Collective Investment Schemes shall be applicable, calculated on a per annum basis of the average daily net assets, effective from July 01, 2025:

Equity Schemes up to 3.00%; Income/Aggressive Income Schemes & Commodities (Deliverable and Cash Settled) Schemes up to 1.50%; Money Market up to 1.25%; fixed Rate/Return Schemes up to 1.00%; and Exchange Traded Fund and Index Schemes up to 0.75%. Provided that in case of hybrid schemes, the AMC shall use a weighted average approach based on respective allocation of net assets to determine the Management Fee Caps: Provided further that the AMC shall not charge a management fee if the Fund of Funds invests in underlying schemes managed by the same AMC:

Provided further that the earlier TER Caps applicable before the date of this notification, for Collective Investment

Schemes shall remain applicable until June 30, 2025, SECP added.

The following Management Fee Caps for a pension fund shall be applicable, calculated on a per annum basis of the average daily net assets, effective from July 01, 2025:

Equity sub-fund up to 2.50%; equity (Index) sub-fund up to 0.75%; Money Market sub-fund up to 1.00%; debt sub-fund up to 1.25% and Commodity (Cash Settled & Deliverable) sub-fund up to 1.5%.

Provided that in case of employer pension fund, the management fee cap and/or the TER of a pension fund shall be as per the agreement between employer and PFM and shall be disclosed in the offering document.

Provided further that the earlier TER Caps applicable before the date of this notification, for pension fund shall remain applicable until June 30, 2025.

To strengthen Shariah compliance in the industry, the amendments introduce a relaxation for obtaining a Shariah Compliance Certificate for Collective Investment Schemes (CIS) that share a similar structure and strategy with an existing Shariah-compliant scheme. Additionally, all CIS lacking a Shariah Compliance Certificate must obtain one by September 30, 2025. Furthermore, an Annual Shariah Advisor’s Report will now be included in the financial statements distributed to unit holders and Voluntary Pension System (VPS) participants.

The amendments were finalized following extensive stakeholder consultations, including engagements with AMCs, PFMs, and the Mutual Funds Association of Pakistan (MUFAP). Through this collaborative process, consensus was reached on amendments aimed at promoting transparency, cost efficiency, and alignment with international best practices in the mutual fund and pension fund sectors.

Copyright Business Recorder, 2025