In a significant move aimed at boosting investor returns, the Securities and Exchange Board of India (Sebi) has mandated a reduction in the fees charged by mutual fund houses. The capital markets regulator announced these sweeping changes during its board meeting on Wednesday, marking a potential shift towards lower costs for millions of mutual fund investors across the country.
Direct Cost Savings for Investors
The most immediate impact for investors comes from a direct cut in the expense ratio ceiling. Sebi has reduced the maximum fee that asset management companies (AMCs) can charge by up to 15 basis points for certain mutual fund schemes. Given that 100 basis points equal one percentage point, this reduction directly lowers the annual cost of investing in these funds, potentially enhancing net returns over the long term.
In a related move to trim costs further down the chain, Sebi also slashed the maximum brokerage that fund houses can pay to brokers for executing trades in equity, futures & options, and debt markets. This reduction in intermediary costs is expected to be passed on, contributing to an overall lower cost structure for mutual fund products.
Clarity on Charges and a Regulatory Revamp
In a bid for greater transparency, the regulator has made a crucial change in how statutory charges are presented. Going forward, all statutory charges like Goods and Services Tax (GST), exchange transaction fees, and the Securities Transaction Tax (STT) will be charged separately and will be exclusive of the fee that the fund house charges. Previously, these were often bundled within the overall expense ratio, making the true cost of fund management less apparent to the investor.
The board meeting also resulted in wide-ranging reviews and amendments to the regulations governing both stock brokers and mutual funds. For stock brokers, the changes aim to streamline rules, use simpler language, and remove redundant provisions to ease compliance. For the mutual fund industry, the changes are even more foundational.
A New Chapter for Mutual Funds After 30 Years
Sebi confirmed it is introducing a completely new set of regulations for the mutual fund industry next year, the first such overhaul in three decades. The new framework is designed to provide stakeholders with greater clarity, improved readability, and better structural coherence. According to a Sebi release, the revised regulations will simplify compliance while strengthening the core principles of investor protection, transparency, and governance that have been built over the years.
In other decisions, the Sebi board approved a proposal to simplify the offer document for public issues, including a shorter summary to help investors make informed decisions. To reduce the compliance burden on companies, it also raised the threshold for identifying a High Value Debt Listed Entity (HVDLE) from Rs 1,000 crore to Rs 5,000 crore. The board reviewed recommendations concerning conflict of interest and asset disclosures for its top officials but deferred a decision on the matter.
Collectively, these measures signal Sebi's continued focus on reducing the cost of investing, enhancing market transparency, and modernizing a regulatory framework to keep pace with the evolving financial landscape, ultimately benefiting the Indian investor.
