Investing in mutual funds may get cheaper as Sebi mulls lower expense fee

Markets regulator Sebi is considering to reduce the additional expenses charged by mutual funds by 15 basis points, a move aimed at increasing penetration of such products among investors.

The proposal, based on an internal study by Sebi on mutual funds, will be discussed at the regulator's board meeting this week, senior officials said.

As per the proposal, the additional expense of 20 basis points may be reduced to 5 basis points across all mutual fund schemes and this need to be reviewed every two years, they added.

A basis point is one-hundredth of a percentage point.

In 2012, the Securities and Exchange Board of India (Sebi) had permitted mutual funds to charge 20 basis points of assets under management of the scheme in lieu of exit loads, or the sum mobilised from investors when they offload holdings.

In case of open ended equity and balanced schemes, the additional expenses charged are significantly higher than the actual credit back of exit load to the scheme. In comparison, these additional charges are lower in the case of open-ended debt schemes.

Across all open ended equity and balanced schemes, an average exit load of around 5 basis points has been credited back whereas an average additional expense of 18-20 basis points has been charged to such schemes.

The regulator is also looking to amend the regulatory framework to enable disclosures related to mutual funds in investor-friendly electronic form.

Under this, mutual fund houses need to prominently disclose on a daily basis the total expenses charged to customers for all schemes under a separate head on their websites. Besides, they need to communicate to investors latest net asset value (NAVs) through SMS following a request from the unitholder.

Currently, there are 42 mutual fund houses managing assets to the tune of over Rs 22 trillion.