SEBI Recommendations on Mutual Fund Fees

The capital markets regulator, Securities and Exchange Board of India (SEBI), has recently put forth a series of proposals aimed at reforming the fee structure of mutual funds. These changes seek to enhance transparency, reduce mis-selling, and make investing in mutual funds more cost-effective.

Uniform Total Expense Ratio (TER)

SEBI has recommended implementing a uniform total expense ratio (TER) for different scheme categories such as equity or debt. Currently, each scheme is allowed to charge a separate TER based on its asset size. Under the proposed changes, the TER will be calculated at the Asset Management Company (AMC) level, ensuring consistency across all schemes within the same fund house.

Lowering Costs

The objective behind these proposals is to lower the costs associated with investing in mutual funds. By streamlining the TER, SEBI aims to bring down expenses for investors. The revised TER slabs are projected to result in TER reductions ranging from 0.5% to 20%, depending on the size of the assets.

Inclusion of GST and Transaction Costs

SEBI has suggested the inclusion of Goods and Service Tax (GST) on investment and advisory fees, as well as transaction costs, in the total expense ratio (TER). This move aims to provide investors with a clearer picture of the overall costs associated with their investments and aligns with the broader objective of transparency.

Performance Fee

Another notable proposal is the introduction of a performance fee that mutual funds can charge investors for superior returns. This fee structure incentivizes fund managers to achieve better performance, aligning their interests with those of the investors.

Impact on Small AMCs

SEBI has taken into consideration the interests of smaller Asset Management Companies (AMCs) and has proposed revised TER slabs that ensure they are not at a disadvantage. This step encourages healthy competition among AMCs of all sizes and supports the growth of the mutual fund industry.



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