Sebi Proposes Reduction in Mutual Fund Charges to Benefit Investors

Strategic Insights -

Markets regulator Sebi on Tuesday proposed a significant reduction in charges that investors pay to open-ended mutual funds. The proposed changes aim to benefit investors by slashing charges on equity funds to 0.9% and non-equity funds to 0.7%, down from the current minimum charges of 1.05% and 0.8%, respectively. For close-ended funds, the proposed reduction is 25 basis points to 1% for equity schemes and 20 basis points to 0.8% for other such schemes. Additionally, Sebi has proposed a drastic cut in brokerage that mutual funds pay to stock brokers, from a maximum of 12 basis points to 2 basis points.

Key Takeaways:

  • Sebi proposes up to 15 basis points cut in charges for open-ended mutual funds, with the lowest slab at 0.9% for equity funds and 0.7% for non-equity funds above certain threshold assets under management (AUM).
  • For close-ended funds, the proposed cut is up to 25 basis points for equity schemes and 20 basis points for other schemes.
  • The maximum brokerage paid by mutual funds to stock brokers could be reduced from 12 basis points to 2 basis points.
  • Fund industry veterans say that investors would gain the most from these proposals, but some asset management companies could be hurt in terms of revenue and profitability.
  • Fund houses with large equity AUM would be more affected than those with AUM balanced between debt and equity, or more skewed towards debt AUM.
  • Sebi proposed the changes after a detailed survey among fund houses about 6-8 months ago.
  • Industry officials plan to make representations to the regulator for a lower cut in expenses than what have been proposed.

Statistics:

  • 100 basis points = 1 percentage point
  • Up to 1.05% (from 1.05% to 0.9%) reduction in charges for equity funds
  • Up to 0.8% (from 0.8% to 0.7%) reduction in charges for non-equity funds
  • 25 basis points to 1% reduction for close-ended equity funds
  • 20 basis points to 0.8% reduction for close-ended non-equity funds
  • 12 basis points to 2 basis points reduction in brokerage

Sources:

  • Sebi news, Tuesday
  • Fund industry veterans and experts (no specific sources cited)
  • A domestic fund house head (no specific name or organization cited)
  • Securities Transaction Tax (STT) regulatory framework
  • Goods and Services Tax (GST) regulatory framework
  • Stamp duty regulatory framework