SEBI lowers fee cap for mutual funds, likely to benefit lakhs of investors
In a move that is expected to benefit lakhs of investors, the Securities and Exchange Board of India (SEBI) has announced a reduction in the total expense ratio (TER) charged by mutual fund companies. The TER, which is a percentage of the fund’s assets, is used to cover the operating expenses of the mutual fund. The reduction, although small, is expected to result in significant savings for investors over the long term.
According to the new regulations, the TER will now comprise three components: base expense ratio, brokerage, and statutory levies. The base expense ratio will include expenses such as management fees, administrative costs, and distribution fees. Brokerage will include the costs associated with buying and selling securities, while statutory levies will include taxes and other regulatory fees.
The reduction in TER is modest, with a cut of just 15 basis points (bps). However, this small reduction can add up to significant savings over the long term. For example, an investor who invests Rs 1 lakh in a mutual fund with a TER of 2.5% will pay Rs 2,500 in fees per year. If the TER is reduced to 2.35%, the investor will pay Rs 2,350 in fees per year, resulting in a saving of Rs 150.
While the reduction in TER is a positive move, it is worth noting that the bifurcation of TER into its component units may not necessarily result in a reduction in fees for all investors. In some cases, the overall fee may remain unchanged, as the reduction in base expense ratio may be offset by an increase in brokerage or statutory levies. However, the bifurcation of TER will bring more transparency to the fees charged by mutual fund companies, allowing investors to make more informed decisions about their investments.
The reduction in TER is also expected to increase competition among mutual fund companies, as they will need to be more efficient in their operations to keep their fees low. This increased competition is likely to benefit investors, as they will have more options to choose from and will be able to select the mutual fund that best meets their investment needs and goals.
In addition to the reduction in TER, SEBI has also introduced other measures to increase transparency and accountability in the mutual fund industry. These measures include the requirement for mutual fund companies to disclose their portfolio holdings on a daily basis, and the introduction of a new format for the presentation of mutual fund performance data.
Overall, the reduction in TER and the bifurcation of TER into its component units are positive moves that are likely to benefit lakhs of investors. While the reduction in fees may be small, it can add up to significant savings over the long term. Additionally, the increased transparency and accountability in the mutual fund industry will help to build trust and confidence among investors, which is essential for the growth and development of the industry.
In conclusion, the SEBI’s decision to lower the fee cap for mutual funds is a welcome move that is likely to benefit lakhs of investors. The reduction in TER, although small, can result in significant savings over the long term, and the bifurcation of TER into its component units will bring more transparency to the fees charged by mutual fund companies. As the mutual fund industry continues to grow and evolve, it is essential that regulators and industry players work together to increase transparency, accountability, and competition, which will ultimately benefit investors.
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