SEBI wants to bring down the total expense ratio (TER) in mutual funds. In fact, the regulator will soon come out with a discussion paper on TER.SEBI Chairman Ajay Tyagi shared this with Cafemutual on the sidelines of the eighth CII Financial Markets Summit held recently in Mumbai.
Tyagi said that SEBI has been discussing this matter and has also communicated its intent to AMFI.
Recently, G Mahalingam, Whole Time Member, SEBI had said at an industry event that the industry is having good times and good times are the best times to take bitter medicine. “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,” said Mahalingam.
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 would be 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.
