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A report released by ICICI Securities says that the profitability of large fund houses and fund houses with healthy equity-debt mix will be affected due to the proposed TER.
The report said that amongst the listed AMCs, HDFC MF hybrid mix as % of equity mix is 36% while that for Nippon India and UTI is in the range of 15-18%.
The report said that AMCs have passed on TER cuts to distributors in the past. “While historically this has been passed on to intermediaries, we have to see the eventuality this time. Data shows distributors did see a cut in their commission rates in FY20 with substantial impact on small IFAs. This move triggered a consolidation in the industry and also led to individual ARN registrations declining 51% YoY in FY20 and 35% in FY21. Based on AMFI data, industry’s overall commission payout reduced from 0.93% in FY18 to 0.79% in FY19 and 0.61% in FY20.”
Further, performance linked fees could have deeper ramifications. It said, “SEBI is open to performance-linked TER for active open ended equity schemes wherein AMCs can charge higher management fees if scheme performance is more than an indicative return above the tracking difference adjusted benchmark. While this is optional as of now, this performance-based model can have deeper ramifications if implemented. SEBI has proposed to test the model under the regulatory sandbox as of now,” said the report.
