Sebi calls for reduction in TER, more competition in MF sector

Markets regulator Securities and Exchange Board of India (Sebi) today stressed on the need of having higher competition in the mutual fund industry and called for rationalisation in the total expense ratio (TER).

Speaking at an Amfi summit here, Sebi chairman Ajay Tyagi highlighted that the top seven fund houses grab around 60-70 per cent of the market share and 60 per cent of the total profit before tax of the mutual fund industry.

"There is a need to have more competition in the sector and there is a need for TER rationalisation; we are looking into this," Tyagi told reporters on the sideline of the event here.

TER is a percentage of a scheme's corpus that a mutual fund house charges towards expenses including administrative and management.

"The concept of TER started in the late 90s when AUM was Rs 50,000 crore and today it is Rs 23 lakh crore. Therefore, some elements are needed and we are examining the need for rationalisation," he said.

Tyagi said the assets under management (AUM) of the mutual fund industry account for only 11 per cent of the country's GDP, and the industry has a lot of catching up to do as there are a lot of opportunities for growth.

He said financialisation of savings has picked up and since demonetisation, the money came to formal system of banks.

The challenge for mutual funds, according to him, is to look for good investible stocks, as money is chasing a few stocks at present, which is the reason for high PE ratio.

Tyagi also informed that the regulator will soon come out with policy on close-ended funds.

He said the debt fund managers need to be vigilant and value their investment in corporate papers appropriately even as a bulk of money comes from institutional investors.

"The money should be invested in credible debt investment and they have to cautious of credit risk," he said.

Of the total Rs 12.3 trillion AUM at debt funds, Rs 11.5 trillion is from non-retail investors, according to him.

Commenting on allowing mutual fund investment in commodity markets, Tyagi said that the commodity market is still in nascent stage and mutual fund investment won't provide liquidity.

"The regulator is examining the issue of physical deliveries in commodity markets. I can't give any timeline but we are considering that," he said.

On stewardship code, Tyagi said, the mutual fund industry is better placed as compared to other institutions. "We have been trying for FTSC and arguing for same code for insurance and pension funds," he added.