'Need For Improvement': Feroze Azeez Says SEBI’s Mutual Fund Paper More About Transparency Than Lower Costs

SEBI's consultation paper on mutual fund regulations will not necessarily have a big impact on expense ratios but may bring in a lot of transparency in the space, according to Feroze Azeez, Deputy CEO of Anand Rathi Wealth.

While Azeez has failed SEBI's consultation paper, which introduces major changes, including slashing brokerage caps to removing certain fees, Azeez believes the moves are meant to add more transparency than lowering the cost.

“We all see this circular as a great circular,” Azeez told NDTV Profit. “Transparency need was extreme.”

"The consultation paper will not have a large impact on expense ratios, but it will bring a lot of transparency," he added.

Azeez explained that by unbundling costs, such as excluding statutory levies from the Total Expense Ratio (TER), SEBI introduces some much-needed clarity. “As a distributor, it becomes very difficult for us to comprehend what is distributable TER,” he said.

“SEBI has done some reduction but also excluded the expense,” he added, implying the final cost to the investor may not change much, but it will be much clearer what they are paying for.

As far as the direct impact for brokerages is concerned, especially due to cut in brokerage fees, Azeez offered a more coy response. “Maybe, maybe not,” he said, reinforcing that it remains a consultation paper with "room for improvement."

SEBI's consultation paper on mutual funds, if implemented, is a risk to earnings for AMCs, according to a Jefferies report.

The most severe impact is likely to be seen from the proposed “cut of 5 bps in equity exit loads.”

Jefferies estimates this change alone could reduce the FY27 profit before tax (PBT) for major listed players like HDFC AMC and Nippon India AMC by a substantial 30-33%.

Azeez described the proposed removal of the 5 basis point additional expense as "logical," calling the original fee a "painkiller" that was instituted after exit loads were credited back to schemes instead of to the AMCs.

However, Azeez cautioned that the regulator’s assumptions about cost-saving in the distribution chain are flawed.

“SEBI has to acknowledge one point: Economies of scale in the value chain don’t exist” for distributors, he said. “AMCs have very little variable cost but a distributor has a consistent variable cost... So economies of scale should be seen with a very different lens.”

Ultimately, though, Azeez believes the new structure, if implemented, will foster better competition on fees. “Asset management will start competing even on costs,” he said.