HDFC AMC, Reliance Nippon shares crash as Sebi cuts total expense ratio

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Shares of asset management company in Wednesday trade plunged owing to a reduction in total expense ratio by Sebi. The AMCs are threatened by the adverse effect of the reduction in mutual fund expense ratio on their profitability.

HDFC AMC witnessed the first low since its debut in August this year. HDFC Asset Management Co. Ltd. sank 7.6% to ₹1,422 per share. Apparently, the company has seen its share grow over 28% from its issue price of ₹1,100.

Reliance Nippon Life Asset Management Ltd (RNAM) dropped 8.2% to ₹196.55 a share. The company got listed in November 2017. Its share has slipped nearly 22% from its issue price of ₹252 a share.

Sebi revised the total expense ratio for equity-oriented mutual fund schemes at 1.25% and for other schemes at 1% on Tuesday.

“This will have a direct negative impact on overall revenue yields for most AMCs. What the recent rise in assets under management, this will lead to further pressure yields,” said Emkay Research in a note to its investors.

Sebi stated that the payment for all mutual fund commission must be made from the scheme. Further, the industry must consider a full trail model of commission in all schemes without remunerating any upfront commission. The trail model are the rewards earned by distributors as long as investors stay invested in the scheme.

“We expect RNAM to maintain strong position in the AMC business and incrementally benefit from its efforts to penetrate the B15 and B30 locations. Considering overall pressure on yields, we are reducing our revenue estimates by 1.4% for FY20E resulting in earnings decline by 3.2%,” Emkay Research added

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