The maximum TER that can be charged by smaller fund houses, with assets under management (AUM) of up to Rs 500 crore is 2.25 percent for equity schemes and 2 percent for debt funds as of now, according to AMFI. Read on to understand the proposal
The Securities and Exchange Board of India (Sebi) has asked the mutual fund industry to add Goods and Services Tax (GST) and transaction cost to the total expense ratio of mutual funds, sources told CNBC-TV18. Sebi had called a meeting with top mutual funds of the country and the Association of Mutual Funds of India (AMFI) to discuss the rationalization of total expense ratio (TER). At the moment 12 percent GST and the transaction cost levied by distributors on investments are excluded from the tax expense ratio of mutual funds.
Currently, the maximum TER that can be charged by smaller fund houses, with assets under management (AUM) of up to Rs 500 crore is 2.25 percent for equity schemes and 2 percent for debt funds, according to AMFI. In addition, mutual funds have been allowed to charge up to 30 bps more if the new inflows from retail investors from beyond top 30 cities (B30) cities are at least 30 percent of gross new inflows in the scheme or 15 percent of the average assets under management (year to date) of the scheme, whichever is higher.
During the meeting, Sebi officials said that distribution margins swept a lot of inflows last year and investors often end up buying schemes based on their TER rather than their suitability. Sebi has asked mutual fund houses to agree on a lower TER and asked bigger players to take the lead in this case.
In the past, there have been complaints that distributors are shifting investors to new schemes from old ones to earn higher commissions being offered by some fund houses.
CNBC-TV18 has reached out to Sebi for comments on the development and the response is awaited.
(Edited by : Anshul)