SEBI might revise mutual fund fee, may reduce it by a fourth

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I like to learn more about the little complexities of life, money

Securities and Exchange Board of India (SEBI) may revise the costs of mutual funds and cut down almost a fourth. Not only that, the panel also plans on scrapping off junkets for mutual fund distributors. The sub panel of the mutual fund advisory committee will discuss on its prospects.

Low investment costs 

The total mutual fund expenses are expected to reduce by 10-15% with large equity mutual funds taking on the biggest cut. The current slabs were introduced in 1996 and are outdated.

Proposed changes Existing norms
Avg net assets of equity MF (weekly) (in cr) Expense ratio (%) Avg net assets of equity MF (weekly) (in cr) Expense ratio (%)
Up to ₹500 2.25 Up to ₹100 2.5
₹500 – ₹2,000 2 Next ₹300 2.25
₹2,000 – ₹5,000 1.75 Subsequent ₹300 2
₹5,000 – ₹20,000 1.5 Remaining 1.75

 

Investors will benefit from the proposed changes. However the Independent Financial Advisers (IFA) and distributors will bleed as their commissions will be reduced. Distributors receive 1.5-2% commission for selling mutual fund products as opposed to 1% recommended by AMFI (Association of Mutual Funds of India).

Scrapping junkets

Mutual Funds motivate distributors to sell their schemes and propose a target for the same. Acquiring which distributors avail exotic foreign trips. Some of them request for an equivalent amount to be paid in exchange of the trips. There have been times when distributors have gone for 10 or more junkets in a year. And the SEBI has not been very supportive of it.

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