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  • MF News SEBI wants fund houses to reduce TER

    SEBI wants fund houses to reduce TER

    The market regulator wants fund houses to shrink TER so that retail investors get better deal.
    Nishant Patnaik Oct 6, 2017

    SEBI has asked fund houses to reduce the total expense ratio (TER) in mutual funds for investors, said G Mahalingam, Whole Time Member, SEBI. He was addressing fund officials and distributors at the fourth Mint mutual fund conclave held recently in Mumbai.

    He said that the industry is having good times and good times are the best times to take bitter medicine.

    Explaining the rationale behind the proposal, Mahalingam said, “There are areas where we need to work further. One is the TER. We are consulting the industry to understand what we can do in this area. How do we shrink it further? How do we ensure that the investors get better deal? This is something, which we need to work on so that our jurisdiction does not jut out in comparison to some of the advanced countries in terms of TER.”

    A CEO of a foreign fund house told Cafemutual that SEBI wants to bring down the TER cap in mutual funds to 2%. One fallout of reducing TER, he said is that it may limit the commission paying capacity of AMCs. He said, “Globally, costs are coming down. If TER comes down, naturally, fund houses cannot pay the commission they are paying today. IFAs cannot expect to increase their revenues through higher commissions.”

    The only way for IFAs to grow is use technology to grow volumes. “IFAs can grow business by increasing sales volume with the help of technology,” he added.

    Here are the other key takeaways from his speech

    • SEBI to come out with the uniform definitions for MF categories
    • It is desirable for funds to benchmark their schemes against Total Return Index (TRI), a benchmark that captures dividend income.
    • Share of direct schemes has been going up in terms of gross inflows.
    • Industry’s efforts to penetrate into B15 cities has been bearing fruits with share of AUM from B15 cities increasing from 14.2% in March 2014 to 17.8% in March 17.
    • Industry should improve the quality and content of IAPs.
    • It is in industry’s benefit to follow Amfi’s best practices guidelines in letter and spirit. The industry will be better off treating them as non-negotiable..
    • The industry needs to pay more attention to ETFs. ETFs are making a very reluctant entry into India. And mutual funds are the place to ensure that ETFs grow fast.
    • The industry may reach Rs.50 lakh crore in the next 5-6 years.
    Have a query or a doubt?
    Need a clarification or more information on an issue?
    Cafemutual welcomes all mutual fund and insurance related questions. So write in to us at newsdesk@cafemutual.com

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    19 Comments
    Ajay Sharma · 6 years ago `
    Commission to FA is quite low & all peoples are not having big markets. In this competitive markets it is not easy to increase volumes. Already FA's are dependent on other business.
    Mangesh · 6 years ago `
    Yes, AMC should reduce their own administrative expenses to reduce TER. Once it was tried out to reduce commission of IFA, but industry had suffer a lot. Today, all these talk is due to market is at the top. It will not be the case forever.Once downfall starts, people do not take risk even in MF.
    Subhash Sharma · 6 years ago `
    AMC give to much commissions to distributors But AMC official and SEBI official getting very low salary. So every time cost cutting depends only on distributors commissions. Better SEBI don't allow individuals to become distributer. There will no any distributer AMC no need to pay commissions thereafter ter automatically come down.
    Arvind Thakur · 6 years ago `
    Why should TER JUST 2%,It should 0%, innocent investors should get 100%. Mahalunagam ji all hopes are depend on the your show, please bring down ter to zero %. We will thankful to you. But your salary should also be zero, no TA DA & no other allowances and perks should be paid to you. Only paid for good services and advice. Ok.
    sunil bhagat · 6 years ago
    To Mr Aravind Thakur. Why should u get everything for free. there is a cost for earning good returns and for your capital protection which you musd bear. Maybe u manage your investments on your own but do you think you are managing it correctly . Answer honestly. Another point to note is that after your death are your nominees efficient to manage and transfer the investments.Do they have the time to manage it? On one hand we have the insurance industry where costs are very high and here is an over regulated industry where the costs are just reasonable. No need to reduce TER further. Rather Direct may be banned
    Reply
    Padam Singh Chouhan · 6 years ago `
    I agree With Mr. G Mahalingam, Whole Time Member, SEBI. On Reducing TER but before that they should reduce 10% salaries of their own panel
    Arvind Thakur · 6 years ago `
    Sir you are living in the world of illusion, not in practical world, you got high salary and perks, allowances, so you are giving bitter pills dose, once you and your family work without salary allowance perks, then you realise the world.
    If see and tries to face real culprits of the game then you can change your mindset.
    High ter is not the depends upon Agents commission, it also depends on high salary paid to CEO, MD, Funds Manager and others.
    Try bitter pills to them. Definitely ter will come down. Return market degi funds Manager akela jimmedaar nahi hai returns ke liye, Agent contribution is also a part of the show.
    sunil bhagat · 6 years ago
    Sorry Mr Aravind. Nothing comes for free in this world. Sorry if you are out of your running income.
    Reply
    Vishal · 6 years ago `
    SEBI is becoming like a one trick pony. On every occasion it keeps talking abt reducing agent commission. If it indeed wants to cut TER than it should stop allowing new distributors to join the industry. On one hand SEBI wants to cut commissions and on another hand AMFI wants to encourage new distributors to join the industry hence thinking of giving them stipends for six months. Direct plan flows maybe higher compared to regular plans but holding period of regular plan investors are way higher than direct plan investors. SEBI should realise that the good times for industry are due to good times for the stock mkts. It should be careful not to kill the bird which lays golden eggs for investors.
    AMIT D PHADKE · 6 years ago
    Instead of Reducing comission slowly , make it zero only.
    Reply
    Harsh Bangad · 6 years ago `
    Wow!! What a news. great work done by SEBI. First introduction of Direct schemes, then 18% GST, then Commission disclosure, now reduced TER. Great going sir. Let SEBI and AMC management should earn. Why should IFAs earn. We have done our job. Industry AUM is at peak. Now SEBI and AMC will reap fruits from it. But just one request, If you have guts, apply above measures in Insurance industry or any other push product.
    Prashant · 6 years ago `
    This time we should form a distributor lobby and force AMCs to reduce salaries of the employees and not allow them to screw us. Also govt should remove everyone from payroll and only keep consultants who has to prove their expertise and deliver so that they can get fee only. SEBI's RIA model is a failure so whoever conceptualised it should be blamed and all the salaries and perks should be taken back from them. Also there should br no emploryees any where but fee only consultants so that a lot of cost can be saved. I request finance ministry to start with Mr.Mahalingam. Suresh prabhu when was a railway minister ruined it completely so then why was he paid? And why is he still getting paid for no work? We the distributors are the only ones who need to show value all the others including politicians, beaurocrats, Banks(Biggest missellers of all the financial products), insurance Brokers( The second biggest missellers), Insurance companies(by direct selling), AMCs (by direct selling and hands in gloves with SEBI behind distributors commissions). All the abive do not have to prove anything to anyone.

    Shame on all of you
    Goutam Das · 6 years ago `
    Who built AUM of AMC's? By only IFA's or DISTRIBUTORs, Please don't forget it! You are doing anything because we are weak. Please let's do loud( all IFA & Distributor)
    Nagasrinvas · 6 years ago `
    Every official/amc talk about reducing TER.
    1st reduce their salaries,incentives & admin costs.let them use technology as they suggest to the distributor.why they are not doing it. These people are giving free advice.markets are good,hence talking about al this.otherwise,these people are behind distributors for sales by offering more.
    ajay · 6 years ago `
    Why everyone is wasting time here? now there is proposal for 2% and every time needle points towards poor IFAs . One time solution is abolish all IFAs and let AMC do the business by there own with out and distributor network. Do everything with employees and in direct plans. At that point of time SEBI and AMCs will be in better position to reduce TER.
    Rajesh Gupta · 6 years ago `
    To bring honesty into whole MF business, evry penny paid to anyone from top CEO to IFA should be performance linked . You will see 75% AMC and same amount of IFA will close there shops. Lets best prevail in the interest of clients and clients only. Let client pay 15% on income over and above bank FDR to IFA and same way to other stake holders also. No TER.
    tdevendra · 6 years ago `
    SEBi is over zealous of the Mutual funds growth. AS expressed let them ( Salaried class in the country should reduce the salary portion should be proportion to the contribution of the position held)AMFI is a tool in the hands of AMC'S. They never ever understood the IFA fraternity. They are at best collection agents of renewals to fill up their pockets for the expenses incurred. The zealots of TOP Amc's are out and out dethrowning the IFA on some or other pretext. Their conscience is only their proprietory of the hard work of IFA hard earnings. The matter needs PMO's intervention rather than any subordination, because others it is only a mere lip service. The government is striving hard to protect the employment of millions of the lot here is an regulator/Amc/Amfi to dethrown the enthusiasm of the IFA. iT IS TIME that all the top people reduce their salary by 5th so that the country's GDP will be growing a percent and an afforadable life can be given to millions of hapless population-sadbhavana
    Suresh Hardikar · 6 years ago `
    SEBI seems to be obsessed with reducing TER.When there is seperate channel for direct investors and people who need help in getting service from distributors approach distributors. While the distribution commission is negligibly small compared to insurance products why this obsession?
    On the contrary they should concentrate on popularising mFsales by avoiding miss selling that is happening through Banking channels where customers are thrust upon to buy insurance and MF products when sanctioning loans.Has SEBi ever given thought to this aspect?Banks have started increasing non interest income by dubious methods. They have started charging service charge for even registering a OTP .SEBI should study the whole gamut of commission payment structure in all other financial product selling and take informed decision.
    Hinglaj dan · 6 years ago `
    SEBI WANT TO CUT THE EARNING OF IFA and distributor than why sebi is not banning to distributor and IFA to sell mutual fund..How IFA earn more than 10 lac out of all...Why make us fool..Lets be unite otherwise simple tree always cut first and than others..
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