Sebi Changes Fee Rules for Mutual Funds

The Securities and Exchange Board of India (Sebi) changed the fee rules for the ₹80 trillion mutual fund (MF) industry on Wednesday. The new rules are simpler and aim to make costs clearer for investors, while also being fair to fund managers.

The new system, starting April 1, introduces a “base expense ratio” (BER). This is the fee an asset management company (AMC) charges to manage investors’ money.

this replaces the current “total expense ratio” (TER). The TER included extra costs like brokerage, taxes on buying and selling securities, and exchange fees.

Under the new rules, these extra costs will be shown separately from the BER. The BER will depend on the type of fund and how much money it manages.

For open-ended equity funds (funds that invest in stocks), the BER will be between 2.10 percent (for funds with up to ₹500 crore in assets) and 0.95 percent (for funds with over ₹50,000 crore in assets). For non-equity funds, the limits are between 1.85 percent and 0.70 percent for similar amounts of assets.

Fees for close-ended funds (funds with a fixed investment period) are also being lowered. AMCs can charge lower bers to attract more investors.

When sebi frist proposed these changes, the stock prices of listed AMCs went down because investors worried about lower profits.

Sebi Chairman Tuhin Kanta Pandey said the final rules are a good balance. They won’t hurt fund managers too much, but investors will have clearer data and potentially lower costs.

Sebi also decided not to separate research and brokerage charges, as was previously considered.