MF industry heaves a sigh of relief as SEBI puts off decision on TER cut

The mutual fund industry heaved a sigh of relief with capital market regulator SEBI considering to issue another consultation paper on reduction in Total Expense Ratio (TER) charged on investors after it was satisfied with economies of scale achieved by the industry.

Madhabi Puri Buch, Chairperson, SEBI said it got feedback from the MF industry and more granular data for last 5 years that demonstrated that economies of scale have, in fact, been achieved to quite an extent.

The issue around the TER for mutual funds was discussed in depth and a new consultation paper will be drafted taking into consideration the data shared by the industry, she said addressing media after the board meeting held on Wednesday.

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She explained further that SEBI takes its decision based on hardcore numbers and the earlier proposals were based on an exercise undertaken by SEBI earlier this year.

“The MF industry will be quite happy with our second set of proposals,” she said.

Earlier, SEBI had issued a consultation paper suggesting to calculate TER including brokerage fees and GST on management fee at the asset management company level rather than at the scheme level. This approach was aimed to provide a more holistic view on expenses incurred by mutual funds.

• Also Read: Cut in expense ratio of MFs will lead to lower tax collection

Industry body AMFI had written to SEBI raised questions on including GST, transaction fee, security transaction tax and brokerage in the TER.

If these charges are added to TER, AMFI said it could deter fund managers in undertaking investment transactions on fear of breaching TER limits in high-churn portfolios.

Potential shift

Sonam Srivastava, Founder & CEO, Wright Research said SEBI has deferred its decision to rationalise the TER based on detailed feedback provided by the mutual fund industry and using this new data the cut in TER may be implemented in a different form than initially planned, she said.

She hinted that the second set of proposals on TER might be less stringent than the earlier ones, suggesting a potential shift in SEBI’s stance on the fees charged by mutual fund houses, said Srivastava.

SEBI may release the second consultation paper on TER soon, and a final decision on this matter will be taken in the board meeting scheduled for September-end, said Srivastava.

• Also Read: Cut in total expense ratio will lead to lower MF inflows, say financial advisors

Manish Khanna, Co-Founder, Unlisted Assets said with the reduction in IPO listing timelines, companies will receive funds and allottees will get securities in a shorter period of time. The subscribers who were not allotted shares would be returned their money back quickly thereby reducing the blockage of funds, he said.

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