Sebi initiates study on fees and expenses charged by mutual funds

Markets regulator Securities and Exchange Board of India (Sebi) has initiated a detailed study of fees and expenses charged by mutual funds. The regulator said the study will seek to provide data as input for policy formulations.

“The policies as always would seek to balance the need for facilitating financial inclusion, encouraging new participants, leveraging economies of scale, encouraging adoption of technology, discouraging cross-subsidization across schemes, closing arbitrage opportunities, and curbing malpractices,” Sebi said.

This study is part of ongoing reviews that Sebi conducts to see whether existing regulations reflect the market conditions and their impact on investor interest. The reviews are in consultation with the stakeholders.

“Based on the study, if required, appropriate policy measures would be undertaken after following the established process of stakeholder consultation and public consultation,” Sebi said.

Under Sebi regulations, mutual funds charge a certain annual fee called the total expense ratio (TER) for managing a scheme as a percentage of the fund’s daily net assets. The fee is charged to cover operating expenses like administrative expenses, transaction costs, investment management fees etc.,

For instance, Sebi rules mandate that the total expense ratio for equity schemes on the first Rs 500 crore assets under management (AUM) is 2.25% and for debt funds, it is 2%. The expense ratio decreases as the AUM increases.

The mutual fund industry has recently crossed the milestone of AUM at Rs 40 lakh crore.

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