Sebi Proposes Changes to Mutual Fund Fee Structures to Improve Transparency and Cost Efficiency

Strategic Insights -

The Securities and Exchange Board of India (Sebi) has proposed changes to mutual fund fee structures in a bid to make them more transparent and cost-efficient for investors. As part of a comprehensive review of India's mutual fund regulations, Sebi aims to ensure investors benefit more directly from the economies of scale in the Rs 75.6 lakh crore industry. The proposed amendments include reducing the base expense ratio of open-ended equity mutual fund schemes by 15 basis points and close-end equity mutual fund schemes by 25 basis points.

Key Takeaways:

  • Sebi proposes to remove the additional 5 basis points (bps) charged across schemes, which was introduced in 2012 to help fund houses recover distribution and marketing costs.
  • The first two slabs (lower AUM bracket) of the expense ratio of open-ended active schemes have been revised upward by 5 bps to soften the impact of the move on fund houses.
  • All statutory levies, including STT, GST, stamp duty, and CTT, will be kept outside the total expense ratio (TER) limits to ensure transparency and clarity.
  • Mutual fund transaction costs, including brokerage and transaction costs, will be reduced - cash market transactions from 12 bps to 2 bps and derivatives trades from 5 bps to 1 bps.
  • Sebi proposes that fund houses make detailed disclosures of the total expense ratio, with clear breakups of all relevant heads, to enhance transparency.
  • Public comments on the proposals have been invited until November 17, and the proposed amendments aim to bring down the base expense ratio of mutual fund schemes.

Statistics:

  • The proposed reduction in base expense ratio of open-ended equity mutual fund schemes is 15 basis points.
  • The proposed reduction in base expense ratio of close-end equity mutual fund schemes is 25 basis points.
  • The Rs 75.6 lakh crore industry size is what Sebi aims to ensure investors benefit more directly from the economies of scale.
  • The additional 5 basis points (bps) charged across schemes, which is being removed, was introduced in 2012.
  • The first two slabs (lower AUM bracket) of the expense ratio of open-ended active schemes have been revised upward by 5 bps.

Sources:

  • "Sebi proposes changes to mutual fund fee structures to bring transparency, cost efficiency" (Business Standard)