SEBI lowers fee cap for mutual funds, likely to benefit lakhs of investors
In a move that is expected to benefit lakhs of investors in the country, the Securities and Exchange Board of India (SEBI) has announced a reduction in the fee cap for mutual funds. The total expense ratio (TER), which is charged by mutual fund companies, will now comprise the base expense ratio, brokerage, and statutory levies. Although the cut is a modest 15 basis points, it is likely to result in significant savings for investors over the long term.
The TER is a percentage of the total assets under management of a mutual fund scheme, and it is used to cover the various expenses incurred by the fund, including management fees, distribution fees, and other operational costs. The SEBI has been reviewing the TER structure for some time now, with the aim of making it more transparent and investor-friendly. The latest move is a step in this direction, as it seeks to bifurcate the TER into its component units, thereby providing more clarity to investors about the fees they are paying.
The reduction in the TER cap is expected to have a positive impact on investors, as it will reduce the expense ratio of mutual fund schemes. This, in turn, will result in higher returns for investors, as a lower expense ratio means that more of their investment will be invested in the market, rather than being eaten away by fees. The cut is particularly significant for small investors, who may not have the negotiating power to secure lower fees from mutual fund companies.
However, it is worth noting that the bifurcation of the TER into its component units may not necessarily result in a reduction in the overall fee paid by investors in all cases. In some instances, the base expense ratio may be reduced, but the brokerage and statutory levies may be increased, resulting in the overall fee remaining unchanged. Nevertheless, the move is expected to bring more transparency to the mutual fund industry, which is a welcome development for investors.
The SEBI’s decision to reduce the TER cap is also expected to increase competition among mutual fund companies, as they will be forced to review their fee structures and become more competitive in order to attract investors. This is likely to result in better services and higher returns for investors, as mutual fund companies strive to outdo each other in terms of performance and fees.
In recent years, the mutual fund industry has experienced rapid growth, with more and more investors turning to mutual funds as a means of investing in the stock market. However, the high fees charged by mutual fund companies have been a major concern for investors, with many feeling that they are being overcharged for the services they receive. The SEBI’s decision to reduce the TER cap is a step in the right direction, as it seeks to address this concern and make mutual funds more affordable for investors.
The impact of the SEBI’s decision will be felt across the mutual fund industry, with all types of schemes likely to be affected. Equity schemes, which have been among the most popular types of mutual funds in recent years, will see a reduction in their TER caps, resulting in lower fees for investors. Debt schemes, which have also been popular among investors, will also see a reduction in their TER caps, resulting in lower fees and higher returns for investors.
In conclusion, the SEBI’s decision to reduce the TER cap for mutual funds is a welcome move that is likely to benefit lakhs of investors in the country. The reduction in the TER cap will result in lower fees for investors, which will translate into higher returns over the long term. The bifurcation of the TER into its component units will also bring more transparency to the mutual fund industry, which is a positive development for investors. As the mutual fund industry continues to grow and evolve, it is likely that we will see more measures aimed at making mutual funds more affordable and accessible to investors.
For more information on this topic, please visit: https://www.moneycontrol.com/news/business/personal-finance/sebi-lowers-mutual-fund-expense-ratios-what-the-10-15-bps-cut-means-for-your-investments-13732378.html/amp
About the Author
