The Securities and Exchange Board of India (SEBI) is reassessing its plan to sharply reduce brokerage fees paid by asset management companies (AMCs) on mutual fund transactions, according to a Financial Express report. The regulator’s rethink follows strong feedback from institutional stakeholders who flagged potential challenges arising from such a steep reduction.
Regulator Re-evaluates Brokerage Cap
Back in October, SEBI proposed cutting the maximum brokerage that AMCs can pay on cash market trades—from the current 12 basis points to just 2 basis points. The proposal was intended to simplify costs and improve transparency for mutual fund investors. However, during a recent closed-door discussion at the CII Financing Summit, several industry participants urged SEBI to reconsider, citing operational and commercial concerns.
Industry Flags Impact on Smaller Brokerages
A common worry among attendees was the potential strain on smaller brokerage firms. Many argued that such a drastic fee cap could compromise the viability of smaller players and the research capabilities they support. With a lower cap, AMCs could end up transferring cost pressures to brokers, potentially affecting service quality and research output.
Debate Over Brokerage vs Research Fees
A key point of contention is whether brokerage services and research support should continue to be bundled. Brokerages that offer research-intensive services have expressed that a 2-basis-point fee would not cover their rising costs—particularly those spending heavily on analytical tools, data systems, and research teams.
Potential Implications for AMC Operations
If implemented in its original form, the directive could reshape cost structures across AMCs. Industry executives fear that cost compression at the AMC level may eventually flow downstream, affecting how research insights and advisory services reach investors.
What’s Next?
SEBI Chairman Tuhin Kanta Pandey has signalled that the regulator is open to revisiting the proposal. SEBI is expected to hold further consultations with industry players to better understand operational dynamics and create a framework that balances investor interests with the financial health of market intermediaries.
Summary
SEBI is rethinking its proposal to reduce brokerage fees paid by AMCs after industry participants voiced concerns about its operational impact. The regulator is now expected to consult stakeholders further to find a middle ground that protects both investors and market institutions.
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