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A report released by Jefferies says that the MF industry is likely to see a fall of 15 bps in the TER due to the proposed TER regulations.
The report finds out that top 5 fund houses will have significant impact of 29 bps on their existing TER. Currently, these top 5 fund houses command 50% of the total equity AUM, points out the report.
Overall, the proposed TER structure will have 50:50 impact i.e. half of players would gain from the proposed TER structure.
Further, the report said that this could lead to dislocation in the MF industry. “We estimate a big divergence in impact as (1) Top-5 funds should see 30bps fall in TER, (2) Next-5 a 10bps fall, (3) Next-10 a 12bps rise, (4) Next-10 a 4bps fall and (5) others (below #30) a 11bps rise. While smaller MFs should gain higher TER, we believe that risk of disruption exists if larger MFs aggressively advertise their 60-100bps lower TERs to gain market share in AUMs to offset revenue impact.”
Let us look at the table to know more:
However, the report says that the AMCs will reduce impact by passing it on to value chain that includes distributors, stock brokers and RTAs among others. “We believe that AMCs can reduce impact by sharing the burden with value-chain that includes distributors, stock brokers, and RTA partners, among others. Also, tweaks to caps for arbitrage funds, headroom for STT & balanced TERs could also lower impact,” says the report.
