Shares of asset management companies (AMCs) tumbled up to 10.3 per cent on Wednesday after the Securities and Exchange Board of India decided to slash the charges levied by mutual funds from investors.

Reliance Nippon Life Asset Management dived 10.29 per cent to hit its one-year low level of Rs 192.10 on the BSE. HDFC AMC tumbled 9.29 per cent to Rs 1,397 -- its 52-week low.

Commenting on SEBI’s announcement on significant changes to TER structure, JM Financial Institutional Securities said: “While the move is a positive step towards increasing the reach and reducing costs for retail MF investors as also improving transparency, it has a negative impact on profitability for AMCs.”

In a major overhaul of the fee structure that mutual funds charge from investors, SEBI had on Tuesday decided to cap the total expenses for investment in such funds to 2.25 per cent.

Mutual fund industry must adopt the full-trail model of commission in all schemes, SEBI Chairman Ajay Tyagi told reporters in Mumbai after the board meeting. A trail-fee model benefits distributors if their clients stay invested in schemes for a longer period.

At present, mutual funds pay distributors an upfront commission as high as 2 per cent against one per cent recommended by the Association of Mutual Funds in India.

SEBI board has also cleared the proposal to cap the maximum total expense ratio (TER) -- the fee that mutual funds collect from investors every year to manage their money -- for closed ended equity schemes to 1.25 per cent and other than equity schemes to 1 per cent. Maximum TER for open ended equity schemes will be 2.25 per cent.

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