Sebi mulls sharp cut in fees MFs charge investors

MUMBAI: Markets regulator Sebi on Tuesday proposed up to 15 basis points (100 basis points = 1 percentage point) cut in charges that investors pay to open ended mutual funds with the lowest slab at 0.9% for equity funds above certain threshold assets under management (AUM) and 0.7% for non-equity funds. Currently, the minimum charges are 1.05% for equity and 0.8% for non-equity schemes, respectively.

For close ended funds the charges could be cut as much as 25 basis points to 1% for equity schemes and by 20 basis points to 0.8% for other such schemes.

Sebi also proposed to drastically cut brokerage that MFs pay to stock brokers, from a maximum of 12 basis points now to 2 basis points. Currently, on an average most fund houses pay equity brokerage of about 6-8 basis points, head of a domestic fund house said.

Fund industry veterans said that if these proposals are made into rules, investors would gain the most. They also said if proposals become rules and fund houses are forced to pay current rate of commissions to MF distributors, it would hurt revenue and profitability of some of the asset management companies. Fund houses with large equity AUM would be hit more than those with AUM balanced between debt and equity, or more skewed towards debt AUM, they said.

Although Sebi proposed the changes after a detailed survey among fund houses about 6-8 months ago, industry officials said they would make representations to the regulator for lower cut in expenses than what have been proposed.

Sebi also specified that under the rules being proposed, all the statutory charges like securities transaction tax (STT), GST, stamp duty etc would be borne by the investors, "so that any change in statutory levy in future are passed on to the investors".