Market regulator SEBI on Tuesday proposed a major change in the way mutual funds charge. In this, there will be important changes in how fund houses charge fees from investors and the Total Expense Ratio (TER) will be reduced. Its objective is to simplify the rules, increase transparency and reduce the total cost of investors. SEBI said in a consultation paper that these changes will ease compliance and bring regulatory clarity. Comments have been sought from the public till November 17.
The impact of this draft from SEBI was seen on small asset management companies. Shares of HDFC AMC, Nippon Life AMC and Aditya Birla AMC have fallen by up to 10%. Let us understand in detail what are the new rules of SEBI?
Impact on brokerage charges
To bring transparency in the mutual fund market and keep investors’ money safe, new proposals have been brought by SEBI, which include rules related to change in exit load, improvement in total expense ratio, reducing brokerage charges. In this, SEBI has proposed to reduce brokerage charges from 12bps to 2bps for cash market and from 5bps to 1bps for derivatives, this will increase transparency, reduce costs, but will also create pressure on small AMCs.
Change in exit load
Although there is a proposal to increase the expense ratio by 5bps in the first two slabs, so that the impact can be mitigated, yet this may put more burden on small AMCs and asset management companies. SEBI has suggested that government fees and permitted expenses should be shown separately from the total expense ratio. With this, investors will clearly understand the true picture of the expenditure. Brokerage house ICICI Securities says that SEBI has suggested removing the additional 5bps exit load on mutual funds. This will affect the entire AMC industry, because currently all parties bear this burden together.
they suffered loss
The impact of the decisions taken by SEBI related to mutual funds was seen on small asset management companies. Shares of HDFC Asset Management Company, Aditya Birla Sun Life AMC, UTI AMC, Nippon Life India AMC and Shriram AMC all fell up to 10% in trade yesterday. Other stocks like CAMS, Nuvama and Motilal Oswal also fell by more than 4%.