SEBI is likely to make changes to the expense ratio slab soon.
The six-member MFAC sub-committee, which SEBI constituted to review the existing TER structure has reportedly recommended SEBI to look at the existing expense ratio slabs.
Currently, fund houses can charge up to 2.50% on equity funds and 2.25% on debt funds.
Here is the existing TER slab
Expense ratio slab
|
AUM |
Equity TER |
Debt TER |
|
Up to Rs.100 crore |
2.50% |
2.25% |
|
Next Rs.300 crore i.e. up to Rs.400 crore |
2.25% |
2% |
|
Next Rs.300 crore or up to Rs.700 crore |
2% |
1.75% |
|
Above Rs.700 crore |
1.75% |
1.50% |
Source: SEBI
A senior official aware of the development said that the subcommittee has already submitted its recommendations to SEBI. “Among other things, the committee has suggested to SEBI that the market regulator should revisit the exiting expense ratio slab. Since SEBI has made this slab structure many years back, these slabs are not relevant any more. Most schemes are today more than Rs.700 crore,” he said.
Another senior official who is on the MFAC told Cafemutual that SEBI may either tweak the existing TER structure or introduce two or three new slabs to rationalize TER.
“AMFI has also requested SEBI not to make substantial changes to TER. In fact, India is not expensive country. The study commissioned by FIFA shows that India is among the least expensive countries in the world,” he added.
Other suggestions of MFAC subcommittee are introduction of performance linked TER and reduction in TER with the increase in AUM. SEBI is likely to discuss these recommendations at its upcoming board meeting scheduled to be held on September 18.
Last month, SEBI Chairman Ajay Tyagi said that there is a scope to rationalize TER in mutual funds further. Tyagi further said that SEBI had stipulated the current TER structure when industry had AUM of Rs.50, 000 crore. “Much has changed now. The industry is at Rs.24 lakh crore AUM. Hence, the industry needs to keep pace with these developments.”
A few months, SEBI has revised the definition of top cities and beyond top cities for additional TER. It has also reduced expenses charged in lieu of exit to 0.05%. SEBI made these changes on the recommendation of MFAC, which led to reduction in overall TER and trail commission of distributors.
