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Sebi Proposes Overhaul of Mutual Fund Fee Structure to Simplify Rules and Reduce Costs for Investors

Strategic Insights

— 1 min read

Sebi, the capital markets regulator, has proposed a comprehensive overhaul of the country's mutual fund fee structure, including key changes to how fund houses charge investors. The proposed changes aim to make mutual fund fees clearer and fairer, while ensuring that investors benefit more directly from economies of scale in the Rs 75.6 lakh crore industry. The regulator has invited public comments until November 17.

Key Takeaways:

  • The proposed overhaul aims to remove the additional 5 basis points (bps) that fund houses were earlier allowed to charge across schemes, which was "transitory in nature" and originally meant to cover distribution expenses when the exit load system was changed in 2012.
  • To cushion fund houses from the impact of this removal, Sebi has proposed to revise upward the first two slabs of expense ratios by 5 bps in the new structure.
  • The regulator wants to exclude statutory levies such as securities transaction tax (STT), GST, commodity transaction tax (CTT) and stamp duty from the overall expense ratio cap, meaning any future changes in such government taxes will be passed directly to investors.
  • The consultation paper proposes tighter limits on brokerage and transaction charges that can be passed on to investors, cutting these to 2 bps for cash transactions and 1 bps for derivatives trades.
  • Sebi is concerned that investors were effectively paying twice for research, once through management fees and again as part of brokerage costs.
  • The proposed changes are part of Sebi's effort to simplify rules, improve transparency, and reduce costs for unit holders.

Statistics:

  • Rs 75.6 lakh crore: the size of the mutual fund industry in India.
  • 5 basis points: the additional charge that fund houses were earlier allowed to charge across schemes, which Sebi proposes to remove.
  • 2 bps: the proposed limit on brokerage and transaction charges that can be passed on to investors for cash transactions.
  • 1 bps: the proposed limit on brokerage and transaction charges that can be passed on to investors for derivatives trades.

Sources:

  • [Times of India: Sebi proposes overhaul of mutual fund fee structure](https://timesofindia.indiatimes.com/business/Sebi-proposes-overhaul-of-mutual-fund-fee-structure/articleshow/87312402.cms)

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