SEBI Proposes Major Changes to Mutual Fund Fee Structures for Enhanced Transparency and Efficiency
In a significant initiative aimed at increasing transparency and cost efficiency within India’s mutual funds, the Securities and Exchange Board of India (SEBI) has proposed noteworthy changes to the current fee structure. This overhaul, marking the first major review of mutual fund regulations in nearly 30 years, is designed to better benefit investors by allowing for clearer understanding and lower costs.
Key Proposals for Mutual Funds
– Exclusion of Statutory Levies from Total Expense Ratio (TER): SEBI suggests that charges such as Securities Transaction Tax (STT), Goods and Services Tax (GST), Stamp Duty, and Commodity Transaction Tax (CTT) should not count towards the TER limits. This move is intended to provide greater clarity and ensure that any future changes in these levies are directly reflected in investor costs.
– Reduction in Expense Ratios: The base expense ratio of open-ended equity mutual funds is set to decrease by 15 basis points, while closed-end equity mutual funds will see a reduction of 25 basis points.
– Removal of Additional Charges: The additional 5 basis points that mutual fund houses could charge across their schemes will be eliminated, reversing a policy introduced in 2012. SEBI aims to rationalize costs for unitholders through this change.
– Brokerage and Transaction Cost Reductions: Currently, mutual funds can levy up to 12 basis points for cash market transactions and 5 basis points for derivatives trades. SEBI plans to reduce these to 2 and 1 basis points, respectively, enhancing overall investor value.
– Enhanced Transparency: SEBI will require mutual funds to disclose a detailed breakdown of the TER, making it easier for investors to understand what they are being charged.
Impact on Investors
These changes signify a positive shift towards a more investor-friendly landscape in mutual funds. By aligning costs with actual expenses and improving transparency:
– Investors will have clearer insight into the fees they pay.
– Overall costs for managing mutual fund investments are expected to decline.
– The possibility of double charging for services, such as research and brokerage, will be reduced.
Public comments on these proposals will be accepted until November 17, encouraging input from stakeholders across the industry.
In conclusion, SEBI’s proposed modifications to mutual fund fee structures aim to elevate transparency and efficiency, ultimately benefiting investors in the ever-growing ₹75.6 lakh crore mutual fund industry. As this regulatory shift unfolds, it is crucial for investors to stay informed and engage in discussions about these positive changes.