SEBI’s expense and brokerage overhaul sparks sharp rally in AMC shares
Shares of asset management companies staged a strong rally on December 18 after the Securities and Exchange Board of India approved key revisions to mutual fund expense ratios and brokerage limits, a move widely seen as more accommodative than initially feared. The regulatory relief triggered broad-based buying across listed AMC stocks, with investors reassessing the earnings impact of the revised framework.
HDFC Asset Management Company, Nippon Life India AMC, UTI AMC and Aditya Birla Sun Life AMC were among the top gainers, while recently listed Canara Robeco Asset Management Company surged as much as 8.5 percent in early trade. At around 9:35 am, the Nifty Capital Markets index was trading about 2 percent higher, reflecting improved sentiment toward the sector.
Brokerage cap revisions lift sentiment across fund management stocks
The rally followed SEBI’s decision, announced after its board meeting on December 17, to revise the limits on brokerage paid by asset management companies to brokers and distributors. Importantly, the revised caps will now exclude statutory levies, addressing a long-standing industry concern around double charging of research-related costs to investors.
For cash market transactions, the brokerage cap has been reduced to 6 basis points from the earlier 12 basis points, which included statutory levies. For derivatives transactions, the cap has been lowered to 2 basis points from 5 basis points earlier. While these changes still represent a reduction, they are significantly less stringent than what SEBI had proposed in its October consultation paper.
“The final brokerage caps are far more pragmatic than what was initially suggested,” said a senior executive at a large fund house. “This removes a major overhang on distributor economics and brings the framework closer to ground realities.”
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Market cheers moderation from harsher consultation proposals
In its earlier consultation paper, SEBI had proposed slashing brokerage to just 2 basis points for cash transactions and 1 basis point for derivatives, triggering widespread concern among fund houses and intermediaries. The final decision, which settled at higher levels, was therefore viewed as a relief for the industry.
SEBI has also removed the additional 5 basis points expense allowance that was earlier permitted on schemes with exit loads. While this change tightens cost structures marginally, analysts say it has been largely offset by the moderation in brokerage caps and the broader recalibration of expense ratios.
Investors appeared to factor in the improved earnings visibility almost immediately, driving sharp gains in AMC stocks during early trade.
Revised expense ratios reshape cost structures for equity and debt funds
Beyond brokerage, SEBI’s final decision on mutual fund expense ratios has been another key driver of the rally. Under the revised framework, the maximum expense ratio for open-ended equity schemes with assets below ₹500 crore has been reduced from 2.25 percent to 2.10 percent. For debt schemes in the same AUM category, the cap has been lowered from 2 percent to 1.85 percent.
Overall, active equity funds will now operate within an expense range of 0.95 percent to 2.10 percent, while fixed income funds will be capped between 0.70 percent and 1.85 percent, depending on assets under management. For very large schemes managing more than ₹50,000 crore, the caps have been set at 0.95 percent for equity schemes and 0.70 percent for debt schemes.
Market participants noted that the effective reduction across most slabs is closer to 10 basis points, rather than the steeper cuts of up to 15 basis points that were initially proposed.
Base Expense Ratio framework improves transparency for investors
A structural shift underpinning these changes is the replacement of the Total Expense Ratio with a new Base Expense Ratio framework. Under the BER model, external levies such as GST, stamp duty, Securities Transaction Tax and Commodity Transaction Tax have been kept outside the expense ratio and will be disclosed separately.
As a result, the BER will now reflect only fund-level costs, including management fees, distribution commissions and registrar and transfer agent charges. Industry executives believe this change improves transparency and makes it easier for investors to understand what they are paying for.
“The move to a Base Expense Ratio with taxes kept outside brings much-needed clarity,” said a fund industry veteran. “It’s not materially disruptive for fund houses, but it improves disclosure standards and investor trust.”
Canara Robeco listing draws attention amid sector-wide gains
Among individual stocks, Canara Robeco Asset Management Company stood out, with shares rising as much as 8.5 percent to around ₹312. The stock, which was listed recently, benefited from a combination of regulatory clarity and renewed investor interest in the AMC business model.
HDFC AMC gained over 4 percent, while Nippon Life India AMC rose around 6 percent. UTI AMC and Aditya Birla Sun Life AMC also posted healthy gains, reflecting optimism that earnings pressure from regulatory changes will be less severe than earlier anticipated.
Longer-term outlook hinges on flows and market conditions
Analysts caution that while the regulatory outcome is positive in the near term, the medium-term outlook for AMC stocks will continue to depend on equity market performance and net inflows into mutual funds. Rising competition, especially in passive products, and pressure on margins remain structural challenges for the industry.
That said, the latest SEBI decision has removed a major uncertainty. “The biggest fear was a sharp hit to profitability from aggressive cost caps,” said an analyst at a domestic brokerage. “With that risk largely off the table, valuations in AMC stocks look better supported.”
Regulatory clarity restores confidence in the AMC sector
Overall, SEBI’s calibrated approach has been interpreted as supportive of both investor interests and industry sustainability. By moderating the proposed cuts and introducing greater transparency through the BER framework, the regulator has struck a balance that markets appear to welcome.
The sharp rally in AMC shares underscores how sensitive the sector is to regulatory clarity. For investors, the episode highlights the importance of policy signals in shaping valuations in financial services stocks, particularly in businesses where margins and scale are closely regulated.
