SEBI is said to have nudged fund houses to reduce TER to expand the reach of mutual funds, said three people familiar with the development.
SEBI has reportedly communicated this message to fund houses through AMFI in a recent meeting.
“SEBI wants us to reduce TER. The regulator feels that the cost structure of Indian mutual funds is very high compared to other countries,” said one of senior officials on the condition of anonymity.
A few months back, C VR Rajendran, CEO, AMFI had said that SEBI wants to cap the TER at 2%. He was speaking at the Cafemutual IFA Event 2016 held in February. He said, “Globally, costs are coming down. If TER comes down, naturally, fund houses cannot pay the commission they are paying today. IFAs cannot increase their revenues by expecting higher commissions.”
SEBI Chief U K Sinha has reiterated that AMCs should reduce costs in order to expand the reach of mutual funds. “In asset management in India, the cost is quite high. We are one of the six countries where it is more than 2%. If we really want to expand the reach of mutual funds, then this has to be reduced,” he was quoted in Value Research Mutual Fund Insights.
The Sumit Bose committee has also recommended that the TER charged by AMCs should come down. “Competition has not reduced costs much below the expense ratio that was fixed when the AUM of the industry was much lower,” states the Sumit Bose committee report.
“Managing cost is always a challenge. The mutual fund industry should come out with a solution to rationalize costs before intervention of the Finance Ministry,” SEBI Chairman U K Sinha is reported to have told members in the recent AMFI AGM.
The regulator has already started working in this direction. It has formed a committee headed by Nandan Nilekani, former Chairman of Unique Identification Authority of India (UIDAI) and co-founder of Infosys which has been tasked to suggest measures to reduce cost in mutual funds.
