It’s good news that capital markets regulator Securities and Exchange Board of India (Sebi) brought down the costs (total expense ratio or TER) that mutual funds can charge you, a decision it announced on 18 September. The guidelines were revised 22 years after Sebi first fixed the limits of the annual costs that MFs can charge for managing your money. But what got buried in that announcement is this: closed-end equity funds will only be able to charge a maximum of 1.25% of TER.
Sebi’s aim is to not just bring the costs down but also to clamp down on mis-selling. Here’s how your life—as a mutual fund investor—will change.
Fewer closed-end funds
Closed-end funds aren’t bad, per se. But in the name of differentiation, MFs have often launched similar products such as closed-end equity funds. Between 2013 and now, 209 closed-end equity funds were launched that collected a little over ₹46,130 crore. Fund houses like ICICI Prudential Asset Management, Sundaram Asset Management Co. Ltd, Aditya Birla Sun Life Asset Management Co. Ltd and Reliance Nippon Life Asset Management Co. Ltd launched a series of funds with similar themes, but all of them were closed-end and were an opportunity to collect a corpus at regular intervals. There were many other fund houses as well.
