Sebi extends feedback window on MF expense ratio consultation paper

Capital markets regulator Sebi on Thursday extended the timeline till June 8 for submitting public comments on the proposed sweeping changes to mutual fund's expense ratio.

The proposal is aimed at curbing distributor practices of unnecessary switching of schemes and pushing new fund offerings for higher commissions.

Sebi had placed a consultation paper on the review of the total expense ratio (TER) charged by AMCS to unitholders of fund schemes on May 18 and sought comments till June 1 on the proposal.

Now, it has been decided to extend the timeline for submission of comments to June 8, the regulator said.

TER accounts for the fees and expenses charged by asset management companies (AMCs).

The Securities and Exchange Board of India (Sebi) in its consultation paper proposed the introduction of performance fees for funds. It proposed two approaches in this regard but also suggested testing the models under the Regulatory Sandbox.

In addition, the regulator suggested that TER should be levied at the AMC level and not at the scheme level at present. Moreover, slabs should be bifurcated as equity and non-equity-based assets under management (AUM).

Under the proposed framework, Sebi proposed that at the AMC level, the maximum TER that can be charged for an equity scheme is 2.55 per cent. This limit should be for AMCs that fall within the first AUM slab (up to Rs 2,500 crore).

Further, Sebi is looking to bring all additional heads of expenses under the overall TER. It means all transaction charges should be a subset of the TER itself. It has been proposed that brokerage and transaction fees should be included under this limit alongside securities transaction tax (STT).

In addition, the regulator has suggested that AMCs should be allowed limited membership in the stock exchanges for executing trades for their own mutual fund schemes.

The proposal regarding fees and expenses charged by AMCs to unitholders of mutual fund schemes would facilitate greater transparency in the 42-player mutual fund industry and accrual of benefits of economies of scale to investors.