The Securities and Exchange Board of India (SEBI) has unveiled new proposals aimed at reducing costs for mutual fund investors while increasing transparency in fund operations. The move could have a significant impact on leading asset management companies (AMCs) such as HDFC AMC, UTI AMC, and others in the sector.
Lower Brokerage Fee Limits Proposed
Under SEBI’s latest draft framework, the brokerage fee cap for mutual fund transactions will be reduced sharply. For cash market trades, the ceiling would drop from 12 basis points to 2 basis points, while in the derivatives segment, it would decline from 5 basis points to 1 basis point. The regulator believes this step will help curb unnecessary costs and improve investor returns.
Segregation of Non-Mutual Fund Businesses
SEBI has also proposed that AMCs diversifying into non-mutual fund management activities—such as portfolio management or advisory services—should operate these ventures through separate business units. This structural separation is intended to enhance financial accountability, minimize conflicts of interest, and ensure clearer reporting across business lines.
Revised Expense Ratio Framework
Statutory charges, including the Securities Transaction Tax (STT), Goods and Services Tax (GST), and stamp duty, will continue to remain outside the total expense ratio (TER). Additionally, SEBI plans to introduce a performance-linked expense ratio model, allowing fund expenses to fluctuate based on a scheme’s performance. This performance-based approach aims to better align fund managers’ incentives with investor outcomes.
Enhancing Transparency and Investor Protection
These proposals represent a change from SEBI’s earlier 2023 recommendations, which had suggested including statutory levies within the total expense ratio—an idea that faced pushback from industry participants. SEBI has also suggested eliminating the additional five basis points charge currently applied across an AMC’s total Assets Under Management (AUM).
With these reforms, SEBI intends to strengthen investor trust, reduce operational inefficiencies, and make the mutual fund ecosystem more cost-efficient and transparent.
Summary:
SEBI has proposed a series of regulatory changes to lower mutual fund costs and boost transparency. The key highlights include reducing brokerage fee caps, introducing performance-linked expense ratios, and requiring AMCs to separate non-MF activities into distinct business units. Major fund houses like HDFC AMC and UTI AMC are likely to see operational adjustments as the regulator pushes for a more investor-friendly mutual fund landscape.
Disclaimer:
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