MUMBAI: The cost of investing in mutual funds would come down with Securities and Exchange Board of India’s (SEBI) announcement on Tuesday reducing the total expense ratio (TER) charged by mutual funds.
The TER is capped at 2.25 per cent for open-ended funds with below Rs 500 crore in Assets Under Management (AUM) of equity-oriented schemes, and 2 per cent for other funds.
TER would fall as AUM increases: For AUM of Rs 5,000 to Rs 10,000 crore, the equity schemes would have TER of 1.5 per cent and other 1.25 per cent.
For the slab of AUM between Rs 10,000 crore and Rs 50,000 crore, the TER will reduce by 0.05 per cent for every increase of Rs 5,000 crore in AUM. For AUM above Rs 50,000 crore, the TER would be 1.05 per cent for equity schemes and 0.80 per cent for other schemes.
Mutual fund investments have grown in size over the years and the total AUM reached Rs 25 lakh crore as of August.“While the AUM has grown multiple times, the benefit of economies of scale has not been fully shared with investors,” SEBI commented on the need for reduction in fees charged as expense ratios.
This would result in overall savings of Rs 1,300 crore and Rs 1,500 crore based on the current revenue of the mutual funds, a SEBI official said.
Close-ended equity funds and interval schemes can charge a maximum of 1.25 per cent for equity-oriented schemes and others 1 per cent. Index funds and exchange-traded funds can also charge 1 per cent.
SEBI has allowed an additional expense ratio of 0.30 per cent for what is called B-30 cities that are beyond large metros, where funds work on getting retail participation.
In other announcements, SEBI said it would, for the first time, allow foreign investors to deal in commodities derivatives traded on Indian exchanges, provided the investors have an underlying interest in such commodities.
An exception would be those commodities termed as “sensitive”, broadly defined right now as commodities that are prone to government restrictions.
This will help in the better discovery of prices in line with global commodity markets, SEBI chief Ajay Tyagi said.SEBI would also be issuing a fresh circular about common application forms for the KYC (Know Your Customer) norms for the FPIs (Foreign portfolio investors).
Without elaborating on the details of the new circular, Tyagi said it would be largely in line with the HR Khan Committee recommendations.
The committee had recommended that NRIs, Overseas Citizens of India and Resident Indians should be allowed to hold non-controlling stakes in FPIs and no restriction should be imposed on them to manage non-investing FPIs or SEBI registered offshore funds.
Other steps
The SEBI Board has reduced the time to list shares on stock exchanges after initial public offerings (IPOs) to three days from six days at present. Another proposal cleared by the SEBI Board is introduction of Unified Payments Interface as an alternative payment option for retail investors buying shares in an IPO.