There’s some big news for mutual fund investors. Market regulator SEBI on Tuesday proposed major changes to the rules governing mutual fund total expense ratios (TER).
These changes are considered crucial for investors, as they will reduce fund house charges and positively impact investor returns. SEBI has taken this step to make mutual funds’ expense structures transparent, simple, and investor-friendly. Under the new rules, fund houses will no longer be able to charge an additional 5 basis points (bps), which they were previously temporarily allowed to charge. This change will directly help reduce unitholder expenses and increase returns.
SEBI’s new proposal
SEBI’s new proposal states that all statutory taxes and fees related to mutual funds such as STT, GST, CTT and stamp duty will be excluded from the TER limit, so that investors will not have to bear the burden of these charges. Also, stricter rules will be imposed on brokerage and transaction charges levied by fund houses.
Now their limit has been reduced from 12 bps to 2 bps for cash market and from 5 bps to 1 bps for derivatives. Experts say that this change will promote transparency and will save investors from paying double fees. Till now many fund houses used to charge extra fees in the name of research and other services, due to which investors were unknowingly paying more.
What will happen with the new rule?
Under the new rules, mutual fund companies will now be able to set an expense ratio (TER) based on their performance, but this will not be mandatory; it will be at their discretion. Furthermore, SEBI has clearly stated that when a new scheme is launched, all associated expenses (such as advertising, promotion, or launch preparation) will not be charged to investors, but will be borne by the fund house or trustee.
Deepak Shenoy, founder of CapitalMind Mutual Fund, said that SEBI’s move is very beneficial for investors. Fund companies will now be required to reduce their transaction charges. This will benefit investors in the long run, as it will directly impact their returns and allow them to earn more.
