SEBI Proposes Mutual Fund Fee Restructuring, Lower Brokerage Fee Cap

The Securities And Exchange Board of India (SEBI) proposed measures restructuring the way mutual fund fees are paid among other related measures on Tuesday.

The regulatory body published a consultation paper stating that mutual funds should exclude brokerage and tax charges from the annual fee that customers have to indirectly pay to them to access its services.

Statutory levies like Securities Transaction Tax, Goods and Services Tax (GST), Commodities Transaction Tax, and stamp duty are proposed to be excluded from Total Expense Ratio limits.

It also stipulated that the breakdown of the fee structure should be given to investors up front.

Known as the expense ratio, this fee is taken directly from the fund and removed from the net asset value of the fund which is the amount that customers pay upfront to the mutual funds.

Each net asset value represents a unit of the mutual fund, which investors or customers purchase.

This move is part of SEBI's efforts to bring transparency into the process of mutual fund fee structuring as well as doing away with redundant rules and regulations.

This decision breaks away from the organisation's previous rules on total expense ratios which had garnered opposition from those within the mutual fund industry.

It further recommended reducing the cap on brokerage fees paid by mutual funds for its cash market transactions to two basis points from the 12 basis points it pays.

Similarly, for derivatives, SEBI has also put forward the lowering of brokerage fees transactions to one basis point from five basis points.

The funds can keep a differential or higher fee structure based on its previous performance on a voluntary basis the organisation said.

It also recommended that fund houses who go into non-mutual fund management activities ought to do it via a separate business unit, and have key employees separated from the activities to avoid conflicts of interest.