Hidden Fees Removed
Mumbai
The Securities and Exchange Board of India (SEBI) has unveiled major reforms in mutual fund expense regulations aimed at increasing transparency for investors, even as asset management companies (AMCs) may face short-term profit pressure, according to a report by Centrum.
The key change involves removing the additional 5 basis points (bps) expense allowance tied to exit loads, which is expected to reduce hidden costs and clarify actual fund expenses. While this may impact AMC profitability in the near term, it better aligns investor costs with fund management expenses. The report notes that without corrective measures, AMCs could see a cumulative decline in profit before tax (PBT) by FY27. However, fund houses can adjust operational structures or share costs with distributors to sustain business without raising investor charges.
SEBI has also rationalised total expense ratio (TER) slabs for large equity-oriented schemes. For schemes with assets over Rs 20 billion, the proposed TER cut has been reduced to 10 bps from the previously suggested 15 bps, ensuring that large, efficient schemes remain viable while offering competitive pricing.
A major highlight of the reforms is enhanced transparency. The new rules require clearer segregation of base expenses, brokerage costs, and statutory levies, helping investors better understand the true cost of investing. Brokerage caps have been lowered in both cash and derivatives segments, with statutory levies charged separately. Analysts expect the impact on brokerages to be largely neutral, preserving market stability.
Overall, the reforms are considered structurally positive for investors. Improved disclosure, tighter cost control, and better comparability across schemes are likely to promote informed investment decisions and foster a healthier, more transparent mutual fund ecosystem in the long term.