SEBI wants mutual funds to reduce the fees they pay to R&Ts as it aims to reduce the overall expense ratio
Mumbai: SEBI is nudging mutual funds to negotiate a cut in the fees they pay to the registrar and transfer agents, according to industry sources. This move is a part of the regulator’s move towards lowering the overall expenses of fund houses.
Mutual funds have been talking about reducing the fees paid to the R&Ts for a long time now. Some fund houses, the sources said, are negotiating a reduction in the fees that they pay to their R&Ts.
The maximum fee that is paid to R&Ts is 8 basis points (100 basis point is one percentage point). It varies depending on the scheme and asset class and also from fund house to fund house.
For instance, a retail scheme which pays dividend four times in a year will engage more resources and therefore, gets paid higher fees compared to a debt scheme having institutional investors.
The R&T fees are negotiated every year between the fund house and the transfer agent. “SEBI is saying that the R&T job can be managed with lower costs,” says the marketing head of a leading fund house.
SEBI abolished entry load from August 1, 2009 and is now considering having a single cap on expenses that a fund house can charge to a scheme. Currently, fund houses are allowed to charge 1.75 per cent to 2.5 per cent expenses depending on the size of the AUM and nature of the scheme. In equity schemes, the total expense allowed is 2.5 per cent for the first Rs 100 crore AUM. For the next Rs 300 crore, it is 2.25 per cent and for another Rs 300 crore, 2.00 per cent. For assets above Rs 700 crore, the expenses allowed are 1.75 per cent.
If there is a reduction in the overall expense structure, it will have a direct bearing on the fees paid to all the stakeholders in the mutual fund industry.
The sources said the regulator has informally conveyed to fund houses that they are paying a steep fee to R&Ts. “SEBI has said that registrars are charging too much and we should reduce the fees paid to them,” the source said.
SEBI in a recent meeting of its mutual fund committee had raised the issue of charging a flat 1.50 per cent fee for all equity schemes.
“Regulator can cut down the overall cost (the percentage of expenses allowed) and within that everything has to be reduced. Price is a matter of supply and demand. A regulator cannot decide the price on its own. It’s a matter of bilateral legal negotiation between a fund house and the R&T. Even R&Ts have to pay for manpower and infrastructure costs. You will always try to pay less to the vegetable vendor but he will not like it,” said the CEO of a mid-sized AMC.
The mutual fund industry has five R&Ts which service 41 fund houses. Karvy, CAMS, Franklin Templeton, Sundaram BNP Paribas Fund Services and Deutsche Investor Services are the five R&T service providers in the country.
